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Stakeholder:
a piece of the pie Stakeholder has finally arrived. By now, employers across the UK should have their stakeholder pension provision in place. The run up to its introduction has by no means been a smooth one. There have been issues over whether it will hit its target audience, confusion over employer eligibility, and concerns over its effect on existing schemes. Employers who are not exempt from offering stakeholder have been under pressure to comply with requirements, or face hefty fines imposed by OPRA. However, despite the threat of fines, it appears that employers are still not fully ready for stakeholder. Virgin Direct recently reported that 11 per cent of UK businesses, despite being aware of the stakeholder requirements, still planned to leave it to the last minute and as a result could miss the October 8 deadline. This could result in 50,270 companies paying a whopping £2.5 billion to the government in fines, the company claims. The worst offenders are the small to medium sized companies, with 22 per cent of firms waiting till the last minute. Though
OPRA claims that sorting out stakeholder is really quite easy, and
urges employers to “relax”, there are those that would claim it’s
not the piece of cake that OPRA has made it out to be. Literature
from the DSS is by no means straight forward. Many employers need
to be hand held through the compliance process and they also require
help with the options best suited to their circumstances. Alasdair
Buchanan, head of communications at Scottish Life comments: “They
really need someone who has a reasonable amount of experience in
the pensions sector to help them look at the different options and
not just shoe-horn them into a one-size-fits-all solution which
might not be appropriate for their needs.” Challenges faced when incorporating stakeholder have been varied. Though some companies may have modified their existing schemes to ensure that they satisfy stakeholder requirements, others have been faced with the task of running their existing scheme side by side with stakeholder. Buchanan asserts that this is the area where stakeholder impact has been most prevalent. He says: “Employers had already committed to the principle of providing pensions, and contributing something to them. We have seen a growth in new business, a lot of which can be attributed to existing schemes reviewing whether they meet the exemption requirements and extending eligibility or amending existing schemes.”Buchanan adds that operating within a new environment, with new roles and regulations, and in-depth detail with final regulations emerging quite late on, has presented a challenge for those implementing stakeholder. He claims that the relevant bodies and regulators did not fully think through the finer details, and that has caused obstacles. He goes on to say that tight margins have meant that a re-think of business processes has occurred. “The one per cent cap means we have to have a completely different way of doing business, by designing and thinking through the various processes, not only for ourselves, but for all the other various parties involved.” “We have to look at what methods can be used to change the traditional way of doing business, both in terms of new business and new schemes being set up, and the ongoing administration of those schemes. It’s not just a theoretical issue of designing them on paper, it’s also about making sure that in practice everyone can fit together and operate them,” he adds. Companies have had to get advice from IFAs about what steps to take in the run up to stakeholder. There has been assistance from providers according to Charles Ansdell, corporate relations manager at IFA firm Inter Alliance. He says: “Because of the massive coverage over stakeholder, providers have been very quick to provide as much assistance as possible. Also, falling commissions have necessitated an efficient interaction between IFAs and providers.” Buchanan agrees: “Typically commission levels are about a quarter of what they were, so we are talking about a significant change. The reality is that in the SME market, there are a number of companies who are not prepared to dip their hands in their pockets to pay fees for advice. Those who do are more likely to be from the corporate sector than the individual sector. In a lot of cases, it’s commission rather than fees, so the commission levels are an important part of the practical operation.” Providers are faced with the likelihood that due to the one per cent cap on charges, they are unlikely to make any profit from stakeholder pensions for at least ten years. In a competitive industry where a return is usually expected within 12 months, this is a very long time to wait. Charles Ansdell says that practical implications, in terms of technology, have had a big impact on businesses. He explains: “People had to adapt internal systems and accounting packages. Though providers can give you the stakeholder tools to add on to existing systems, larger companies already have propriety technology and accounting systems which are bespoke, so they would need to consider ways of integrating it.” Nick McConnell, UK Country Manager for Digital Impact claims that the pensions industry can sometimes be too conservative when it comes to snapping up the advantages of the internet and what it can do for pensions, both in terms of efficiency and cost-cutting. He says: “In a competitive environment, companies tend to follow each other, like in the introduction of internet banks such as Egg and Cahoot, for example. I see the same kind of situation occurring for stakeholder pensions, if one of the institutions starts to do very well on the internet, it almost drives the others to do it.” Understandably though, McConnell says, the backdrop of the demise of so many dot coms in the US has put a shadow on the internet. In addition, companies are concerned about security. He
says: “Until we can have greater faith in what the internet has
to offer, then it’s a potential barrier to doing business online.”
According to pension experts, it will be some time until stakeholder
starts to run smoothly, and glitches are eliminated. Any major problems
will certainly come to light over the next 12 months. Buchanan predicts:
“I think you’d be naive to think that the October 8 deadline would
have everything in place and all regulations met. Past experience
like the implementation of the Pensions Act 1995 suggests that it
takes a lengthy amount of time before get things done appropriately.”
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