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Working Lunch Friday, 7 February, 2003, 09:20 GMT
Stake not so rare
Alastair Darling at stakeholder launch
Stakeholder pensions were a New Labour initiative
Government proposals would put the word "stakeholder" in front of virtually every important financial product.

It might be a unit trust, a with-profits plan, an annuity or simple life assurance, but there would always be a stakeholder option to plump for.

Why? The word itself is part of the designer language which sprang up during New Labour's gestation period in the early 1990s.

It sounds wholesome. It's about the common good and giving something back to the consumer.

Antidote

You can use it to apply to almost anything and make it sound better.

Every penny the customer saves should go into the pot, not into the provider's back pocket.

Gordon Maw
Virgin Money
To ministers it feels like the perfect antidote to everything that has gone wrong in the financial world.

But that's just the name. What about the substance?

We already have stakeholder pensions. They are the pre-fabs of the retirement world, built to be simple, cheap, safe and easy to set up.

Then came the Sandler report last July. Ron Sandler followed a brief given him by the government to look at the savings industry and how it could be improved.

What he recommended was more stakeholder-style investments.

Report author Ron Sandler
Ron Sandler: Called for more stakeholders
Now, the Treasury has come up with three different suggestions.

The first is a "unitised product". This would become a standardised alternative to the unit trusts and unitised life policies which have long been on the market.

The units are tiny but equal parts of a fund, usually made up of millions of pounds worth of shares.

To make the unitised product safer and friendlier than a bog standard unit trust, it would be allowed to keep no more than 60% of its value in shares.

It would also have to spread its interests across a wide variety of companies and business sectors.

Frequently

And, crucially, fund managers would not be able to charge customers more than 1% a year of the value of the fund.

Compare that to charges of 1.5%, 2% or even more which are frequently levied.

There would also be a "With-Profits Product", an alternative to the with-profits policies, often part of mortgage endowments, which have been the cause of so much disappointment.

The words "with-profits" would be ditched. The stakeholder version would smooth out the peaks and troughs of the stock market in the same way, but the policies would be easier to understand.

And there would be the same 1% cap on charges.

The rules governing stakeholder pensions would be tightened. And more stakeholder products would be launched later, including a deposit account, an annuity, a financial health check and a child trust fund.

Wringing hands

The whole project has left managers in traditional savings companies wringing their hands.

Financial adviser Anna Bowes
Anna Bowes: No interest
Norwich Union has warned that the new stakeholder offerings will not work because the charges are too low.

Anna Bowes, a financial adviser at Chase de Vere, told Working Lunch: "The worry is that if the management charge is capped at 1%, a lot of institutions just won't be interested.

"It'll also push those companies that do get involved into offering cheap tracker funds, which might not be the right sort of product for everybody."

Pressure

But newer financial firms are welcoming the expansion of the stakeholder concept.

Gordon Maw, a director of Virgin Money, warned ministers not to bow to pressure and relax the upper limit on charges.

"What the government has been saying up to now is that every penny the customer saves should go into the pot, not into the provider's back pocket," says Gordon.

There will now be a three-month consultation period before final proposals are made in the summer.

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