Having been in this industry for a long time I remember the howls of indignation that came from the industry giants that the stakeholder regime was plainly uneconomic.
How could an industry ever work within those margins and make a profit? Most of these big insurers worked out that the break-even point for a stakeholder pension would be around eight years, although I believe this has now been pushed back even further. Not only that but the big insurers managed to successfully lobby for an increase in charges to 1.5 per cent a year for the initial 10 year period.
But now in a “commission free” world where the client pays directly for the advice and service they receive there are any number of pensions that are in the market at less than the costs of a stakeholder pension. It is even possible to get a pension with a facilitated adviser charge that comes in under the stakeholder 1.5 per cent charge.
Now all this has left me wondering, was the problem with stakeholder the smoke and mirrors involved in a commission-based distribution model or large, uneconomic outdated insurers acting like dinosaurs? Has the RDR-driven transparency not benefited the consumer more than the Sandler review ever did? Maybe the problem all along was not the costs of distributing a product (as per Sandler) but about the transparency of that distribution model. Maybe there is a lesson to be learned by a lot of industries and government about the transparency of their distribution systems.
Philip D Stevenson
Chartered Financial Planner
ARK Financial Planning