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 Although AEGON has withdrawn its designation facility for the future, existing stakeholder schemes can be used for automatic enrolment, but they don’t fit well with the RDR.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

Register for Invesco Perpetual’s Investment Intelligence CPD Seminars Round 2: Oil Prices and Deflation - Good or Bad?

Register for Invesco Perpetual’s Investment Intelligence CPD Seminars Round 2: Oil Prices and Deflation - Good or Bad?

The unexpected collapse in the price of oil has been one of the key events in financial markets over the past year.  Join one of Invesco Perpetual’s popular Investment Intelligence Seminars between 13 May and 8 July 2015 to hear what has caused oil prices to collapse, consider the impl...

Comment | Share

Now Pensions: Auto enrolment – we are entering the most dangerous time of all

Now Pensions: Auto enrolment – we are entering the most dangerous time of all

So far all (well most) is well. Overall, auto enrolment has been a big success. I think most people would agree with that. Millions of hitherto pension less employees are now saving (albeit modestly) and with low opt out rates perhaps it will become a habit. The success h...

Comment | Share

Royal London: Pension freedoms knowledge builder

Royal London: Pension freedoms knowledge builder

Watch our video on the new era of retirement to ensure you're ready for the new flexible pension legislation changes. We'll provide a technical view from the legislation including an overview of the following learning outcomes: The new retirement options available. ...

Comment | Share

Anna Stupnytska, Global Economist at Fidelity Worldwide Investment, comments:

Anna Stupnytska, Global Economist at Fidelity Worldwide Investment, comments:

Focus on China growth should be about quality, not quantity While China’s numbers were softer than expected, there is no point in obsessing over the quantity of growth: it is much more important to focus on the quality. In this respect, China’s rebalancing is ...

Comment | Share

Prudential: Pensions Freedom WebEx series – sign up now!

Prudential: Pensions Freedom WebEx series – sign up now!

Prudential are delighted to be running a series of WebExes on the new pensions freedom aimed at helping you identify new financial opportunities with your clients. There are a number of sessions throughout the day on a variety of topics which are easy to register for. Take a look at the d...

Comment | Share

GAM Investment Forums 2015: Refocusing on the long term

GAM Investment Forums 2015: Refocusing on the long term

  Running between 28 April and 1 May, these half-day forums will ...

Comment | Share

Fair Liability Campaign sees solutions to limit liability for advisers move one step closer APFA consults with advisers in last phase of campaign

Fair Liability Campaign sees solutions to limit liability for advisers move one step closer APFA consults with advisers in last phase of campaign

The Association of Professional Financial Advisers (APFA), in conjunction with campaign partner Zurich, is consulting with advisers on possible solutions to limit liability for advisers to help inform ongoing discussions with the regulator. APFA is launching a new online poll seeking advi...

Comment | Share

Free guide to investing in retirement age available from AILO

Free guide to investing in retirement age available from AILO

The Association of International Life Offices (AILO) offers a free guide to help those of retirement age make decisions about how to use an established pension pot. This is especially relevant at the moment, as the latest changes to the UK pensions landscape have been implemented by the c...

Comment | Share

Legg Mason: The beginning of (GR)exit risk premiums?
Sytner Group have now received confirmation of their first allocation of the fabulous Volvo XC90.... arriving June 2015!

Sytner Group have now received confirmation of their first allocation of the fabulous Volvo XC90.... arriving June 2015!

Interested? Then call the Sytner Affinity team today as XC90 availability will initially be scarce. Plus - 3 Years free service plan to pa...

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+