Stakeholder pensions: end of an era?
21 Nov 2012
1 October 2012 marked a milestone in pension history. Not only is it the start of a new age of automatic enrolment; it may also be the end of an era for stakeholder pensions. From this date, employers no longer have to designate a stakeholder pension scheme for their employees.
Stakeholder pensions will continue to exist and most stakeholder regulations, such as the charges cap and information provisions, haven’t changed. Employees who have direct payment agreements (DPAs) in place with their employer before 1 October 2012 aren’t affected.
But from 1 October 2012 it all changes for new employees and existing employees who hadn’t previously chosen to join the designated stakeholder scheme. Employers no longer have to make stakeholder schemes available to these individuals. Effectively this means they won’t have to give access to pension saving until their automatic enrolment date - which may be two, three or more years away. This means that employees who want to do the right thing and start saving early will need to find their own pension saving vehicle and it may be difficult for theme to access advice to do this. It’s far simpler to make pension savings through the workplace.
These changes also apply to employees who stop paying regular contributions, or who withdraw their DPA request.
Of course the big difference under automatic enrolment is that employers have to pay compulsory contributions for employees who don’t opt out of pension saving. There’s no such requirement under the stakeholder regime. As a result there are hundreds of thousands of empty stakeholder schemes where there are no members and no contributions – so-called ‘shell’ schemes. Arguably the removal of stakeholder designation is simply a continuation of the current pension savings gap as many employers don’t contribute to stakeholder schemes.
Between now and 2017 every single UK employer will have to select a pension scheme and start auto-enrolling their eligible employees. Some employers may be tempted to use their existing designated stakeholder scheme to meet their new responsibilities. Although AEGON has withdrawn its designation facility for the future, existing stakeholder schemes can be used for automatic enrolment, but they don’t fit well with the RDR.
The FSA quite rightly allows pre-RDR group schemes to pay commission on new entrants as well as on contribution increases. This allows continuation of ‘good’ schemes, without replacement by a new scheme with potentially lower statutory contributions. However, a shell stakeholder scheme can’t be classed as pre RDR even if it’s set up before the end of 2012 - if no contributions have been made.
The stakeholder price cap is set to stay. But it doesn’t work well with adviser charging or consultancy charging in the new RDR world. Advisers will set their charges independently of the product charge, meaning it’s impossible to be sure the total charge would be below the price cap.
Ideally employers shouldn’t wait until their staging date to set up a good pension scheme for their employees. If they wait, they may find there’s a shortage of advice, so they may find it advantageous to bring forward their staging date; and at the same time help their employees reduce their pension savings gap.
The important role of the onshore bond in financial planning Canada Life was Highly Commended in the Best Investment Bond Provider category at the recent 2014 ILP Moneyfacts Awards. This award is voted for by advisers and is recognition of Canada Life&rsq...
On 24/10/2014 15:07
Just Retirement: New workshops – Beyond Demographics: How does your practice serve later life clients?
Please join Just Retirement Limited and Tish Hanifan, Barrister, Joint Chair and Founder of the Society of Later Life Advisers (SOLLA), for a series of workshops around the UK, to enable Advisers to better understand the challenges faced by this growing market. The workshops run from...
On 24/10/2014 15:01
On Tuesday 4 November, M&G will be hosting a webcast briefing by Randeep Somel, manager of the M&G Global Basics Fund. The call will start at 10:00am GMT on Tuesday 4 November and is expected to last an hour. In the webcast, Randeep will provide an update on the fund and h...
On 24/10/2014 15:00
Panacea is delighted to announce the launch of a mobile version of its website, which is compatible with all mobile phones and tablet devices. ...
On 24/10/2014 12:53
Will Malcolm took over the management of our Asian Pacific Growth Fund four years ago and has delivered top quartile performance over this period. Longer-term performance is also consistently above the sector average over five, seven and ten years*.Will manages the ...
On 24/10/2014 08:22
We’ve improved our online quote and apply service to make doing business with us easier. But what are the benefits of the changes being made to Webcentre? Webcentre will make the most of recent improvements in technology. This means the experience will be more intuiti...
On 24/10/2014 08:17
Earlier this year, seven months ago in fact, the FCA independent directors appointed Clifford Chance litigator Simon Davis to conduct a...
On 23/10/2014 14:26
Visit the Pension Zone for information, technical advice and details of new and existing products from providers on equities, bonds, annuity rates and funds.