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Your say: Is stakeholder a flop?

Toby Walne, Mail on Sunday
6 May 2001, 12:00am

THE Government launched stakeholder pensions to give the less well-off a way of improving their retirement finances. But the TV advertising campaign, which featured talking sheepdogs, has failed to get the message across. Do you think stakeholder is a flop? Discuss the issue on our message boards.

STAKEHOLDER pensions were heralded as the answer to all our retirement woes when they were introduced a month ago - but the launch fireworks have masked a damp squib.

Behind all the bravado of providers touting their budget-priced new pensions, there has been little sign of interest from the low income groups they were aimed at.

Perhaps they didn't take kindly to the virtues of stakeholder being promoted by talking sheepdogs in a £6.5m television and cinema advertising campaign. Or perhaps they did not see the adverts - the dogs were quickly dropped when it was realised that their use during the foot-and-mouth crisis might be seen as being in poor taste.

Either way, according to research by trade body IFA Promotion, 61% of the population has never heard of stakeholder pensions. The biggest interest has come from businesses with five or more employees. By law, they must offer staff a stakeholder scheme by this October if they do not already run a company scheme or similar pension plan.

The main target group - 4m people earning between £9,000 and £20,000 - appears to be the least likely to pick up a stakeholder pension. Wealthier savers, looking for yet another tax-free loophole to protect their savings, are likely to find them more attractive.

Stakeholder pensions work in the same way as traditional personal pensions, but providers are not allowed to charge more than 1% of the fund value in fees every year. They can also be sold to children and non-earners such as housewives.

Nick Bamford, managing director of pension adviser Informed Choice of Cranleigh, Surrey, says: 'April has come and gone with little sign that stakeholder has made any impact at all. After all the hype, we are left with nothing more than a damp squib.

'We have noticed no discernible increase in the take-up of retirement products. What the introduction of stakeholder has done is push down the costs of existing personal pensions, though this took place before the launch.'

He adds: 'The stakeholder has missed the fundamental reason for its existence, which is to encourage people on low incomes to tuck away money for their retirement.

'Unfortunately, the simple truth is that these people do not have the money to save for retirement.'

David Elms, chief executive of IFA Promotion, says: 'People do not buy pensions, they are sold them. Just because stakeholder is a cheap product does not mean it is simple to understand. Many people are put off because they are confused and are not being offered proper advice at the point of sale.'

David Hickman, pensions director of financial adviser The Independent Stakeholder Company in St Albans, Hertfordshire, believes that the Government expected stakeholder to get off to a poor start and is already planning legislation to make such pensions compulsory.

He says: 'Insurance companies are not interested because there is no money to be made from stakeholder. This is why compulsion will undoubtedly come, with the state pension being phased out.

'So far, even those insurance companies offering stakeholders have been dragging their feet. 'Illustrations of pension plans are taking at least a fortnight to reach potential customers, even though they should take just a day.'

Legal & General, a stakeholder provider, is quick to defend the slow start. It is putting a brave face on sluggish sales figures, pointing out that the take-up has been equally spread through three core sales channels - financial advisers, L&G direct and Barclays, for which it provides the new retirement vehicle.

L&G spokesman Mike Smith says: 'We have already had 16,000 enquiries through Barclays from companies wishing to offer the stakeholder pension and are quite surprised by the high interest - not bad for a product that has been around for only a few weeks.'

But he admits: 'It may be that employers are organising stakeholder schemes before they are required to do so. 'There is still a lot of work to be done to ensure that no company falls foul of this stakeholder legislation.'

L&G estimates that about 250,000 employers will have to offer the stakeholder pension, but 77,200 could miss the October deadline. Failure to offer a stakeholder by then could land a company with a fine of up to £50,000. L&G claims it 'does not have a breakdown' of other sales.

Andrew Stronach of Virgin Direct, which offers the stakeholder pension, is bullish about prospects, claiming pension sales for last month are up 77.5% on April last year when stakeholders were not available. However, he is unable to provide specific sales figures for reasons of 'commercial sensitivity'.

He points out that even before the pension was launched, Virgin received 300 enquiries about using stakeholders to save for children.

That will be of little comfort for a Government whose primary target group is not children, but low earners.

The deal most don't know about
STAKEHOLDER, aimed primarily at low earners, was launched on 6 April. It allows participants to put money tax-free into a pension fund, which at retirement is used to provide a regular income. This income is taxable, though up to a quarter of the final fund may be taken as a tax-free lump sum.

The maximum charge for a stakeholder pension is one% a year of the fund value.

Savers may contribute as little as £20 a month and may stop and restart payments. The maximum that can be contributed in a year is £3,600.

Non-earners, such as housewives and children, may take out stakeholders.

Those already saving in a personal pension can take out a stakeholder, so long as they do not break overall contribution limits. Contributors to company schemes can also have stakeholders, provided they do not earn more than £30,000 a year.

Employers with at least five staff must offer stakeholders - from October at the latest - if they do not already provide company schemes.