Stakeholder has caused a shake-up in the AVC market, new research by Bacon & Woodrow shows.
Its survey revealed that AVC providers are bowing to pressure imposed by stakeholder’s 1% cap and are moving to equalise charges.
The survey also revealed that charges and resulting reduction in yield figures had fallen dramatically in the last year as providers began to position their AVC contracts alongside their new stakeholder products.
Bacon & Woodrow said the fall was greatest for lower rates of contributions – the average impact of charges on a £50 per month managed fund AVC contract over a five year period had dropped from 1.5% to 0.8% a year.
Bacon & Woodrow partner Kevin Wesbroom said: “Profit margins for insurers and others participating in the AVC market will be substantially lower in the future and only the strongest players will survive. Pension scheme trustees will need to remain vigilant in ensuring that their contract terms reflect the most competitive available.
The survey also revealed a growing sophistication in the AVC market as some of the principles and practices associated with stakeholder rub-off.
Half the providers in the market are now offering contracts with a range of investment managers, representing a shift away from the traditional “bundled” product and bringing increased choice and diversification opportunities for scheme trustees.
Bacon & Woodrow said this trend would continue as other providers developed their systems to accommodate new-style contracts and “guest” fund managers.
Senior consultant and AVC specialist Chris Cairns said: The dawn of the stakeholder environment, the discrediting of league tables as an approach to investment, and the multiplicity of investment options available means that trustees need to take a radically different look at AVCs.”
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