panacearch

Panacea, the FREE financial services infomediary for financial professionals looking for news, tools, product information & technical intelligence in one place

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 Although AEGON has withdrawn its designation facility for the future, existing stakeholder schemes can be used for automatic enrolment, but they don’t fit well with the RDR.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.

Kate Smith

Aegon

 

More

 

Comments

Login

Login via Unipass (click on logo)

Not yet registered? Please complete this form to join our community

Name Email
Company
Password Confirm Password
Are you a paraplanner?
Yes No

Castle Trust: How to Track the Halifax House Price Index

Castle Trust: How to Track the Halifax House Price Index

Castle Trust’s house price trackers (Housas) allow clients to obtain returns directly linked to house price movements, as measured by the Halifax House Price Index. Clients can choose between our Growth and Foundation Housas depending on their risk appetite and have the option of tracking e...

Comment | Share

Just Retirement: Freedom & Choice: Pension rules summary from April 2015

Just Retirement: Freedom & Choice: Pension rules summary from April 2015

With the increased pension options being offered to retirees from April 2015, there are a number of new rules which determine how clients will access their pension savings and manage their pension income during retirement. But what are the implications of thes...

Comment | Share

Fidelity: Still the lowest-cost index trackers

Fidelity: Still the lowest-cost index trackers

Fidelity still offers the lowest-cost index trackers covering the most popular markets. Our Fidelity Index UK Fund has a fixed OCF of just 0.07% direct from us and 0.09% on ...

Comment | Share

Anna Stupnytska, Global Economist at Fidelity Worldwide Investment, comments on the FOMC meeting

Anna Stupnytska, Global Economist at Fidelity Worldwide Investment, comments on the FOMC meeting

“While ‘patient’ was dropped at the March FOMC meeting as widely anticipated, the Fed’s statement and press conference were clearly on the dovish side. For me, two important messages stood out. Firstly, the Fed explicitly acknowledged the effects of a stronger dollar on gr...

Comment | Share

M&G: Heritage in high yield investing

M&G: Heritage in high yield investing

High yield bonds can form a valuable part of a well-diversified portfolio. A powerful generator of income, these instruments have historically delivered impressive total returns. They also have a relatively low sensitivity to interest rates and, in this respect...

Comment | Share

BNY Melon: Global fixed income opportunities after a strong start to 2015

BNY Melon: Global fixed income opportunities after a strong start to 2015

Credit investors have enjoyed a strong start to 2015 despite widespread market turbulence, according to Standish's Global Opportunistic manager Raman Srivastava. In spite of worries and scepticism over the prospects for high yield paper as the year began, particularly following major outf...

Comment | Share

BNY Mellon: Could China swoop in as saviour of the eurozone periphery?

BNY Mellon: Could China swoop in as saviour of the eurozone periphery?

A Greek exit from the euro could open the door to a raft of unexpected consequences, not least China potentially stepping in as lender of last resort to eurozone periphery nations, according to Newton fund manager Nick Clay. ...

Comment | Share

Hodge Lifetime, the latest provider to join Panacea Adviser community

Hodge Lifetime, the latest provider to join Panacea Adviser community

Panacea Adviser is delighted to announce Hodge Lifetime has joined its growing list of partners.   This new tie-up will provide the Panacea community w...

Comment | Share

Evolution not revolution

Evolution not revolution

In a post RDR world with its aims of delivering fairer treatment for customers, Panacea and Glassagh Consulting have developed a new FREE guide; Evolution not revolution – 14 ideas to take your business forward. The practical guide helps business to rethink their propositions to meet many o...

Comment | Share

Scottish Widows: Getting your potential clients planning

Scottish Widows: Getting your potential clients planning

This year’s pension reforms mean that the landscape for you and your clients is changing like never before. Scottish Widows new ‘Change your l...

Comment | Share

More Stories

 

 
Email this article Print Share on Twitter Share on LinkedIn Share on Facebook Share on Google+

Categories

Pensions

Visit the Pension Zone for information, technical advice and details of new and existing products from providers on equities, bonds, annuity rates and funds.

Panacea Adviser is a unique and free resource that supports advisers, mortgage brokers and paraplanners in running their businesses more efficiently, facilitates contact with financial services product providers, investment firms and support services, plus helps improve their service to clients. Read More about us.

Google+