27th October 2010

Scottish Life - Personal pensions or stakeholder pensions. You decide.

Find out why personal pensions can be as suitable, if not more so, than stakeholder pensions for some clients.

With the Financial Services Authority's increased scrutiny of pension switching advice, and the retention of the RU64 rule, it's never been more important to be able to fully justify your recommendations. So it's crucial to be able to demonstrate, and document, why personal pensions can be as suitable, if not more so, than stakeholder pensions for some clients.

Which product to recommend

While RU64 means you may have to work a little harder to justify your decisions, it is not a barrier to business. There are plenty of reasons why a personal pension or indeed any other type of pension could be as suitable, if not more so, as a stakeholder pension for most of your clients.

This suitability could be based on:

• Investment choice - For a client looking for access to lots of funds and extra investment options (now or in the future) a stakeholder pension may not be the answer. The average number of funds offered by an individual stakeholder pension is just over 20 funds, compared to a personal pension of over 180 funds.¹
  Charges - Stakeholder pensions do not always work out to be the low cost alternative they are supposed to be. With a stakeholder product the cost of the commission must be included within the annual management charge. This means the client is still paying for initial advice years later. This opaque charging structure makes it impossible for the client to know how much they will end up paying for the advice they received.
• Transparency - The FSA are trying to make charging structures more transparent and straight forward. Products that allow the cost of advice to be uncoupled from the product charges (factory gate pricing) are actually much closer to this than a stakeholder charging structure.

For example, our Financial Adviser's Fee (FAF) commission option available through our Pension Portfolio means the cost of advice is deducted directly from the client's plan which is then subject to much lower ongoing charges. The client then knows exactly how much they are paying for advice and also benefit from an extremely low ongoing management charge. This means that ultimately the client can often end up with a higher fund value if the advice is paid for up-front.

Find out more
To learn more about Pension Portfolio and how it can benefit both you and your clients, please visit www.scottishlife.co.uk or contact your usual Scottish Life contact.
Source:

¹ Defaqto Limited, April 2010, the average figures for personal pension are based on 19 providers and the individual stakeholder figures on 13 providers.

Pensions, Investments