A new threat to the UK pensions industry has emerged as mutually-owned stakeholder pension providers become the target for widespread carpetbagging.
The web-based carpetbagging organisation, www.carpetbagger.com, has claimed that thousands of people have taken out £20 single premium stakeholder pensions, thereby becoming entitled to any future windfalls. The resultant cost to providers of administering thousands of £20 single premium pensions could prove prohibitive.
Previously the pensions industry was protected from carpetbagging largely due to the charging structure but in the stakeholder environment providers must stick to government-imposed rules.
Under the new rules the maximum charging structure is 1%, there are no front-end loading of charges, no bid/offer spreads, and the fact that there are no exit fees means that individuals can pay a minimum one-off contribution of £20 to obtain membership rights.
“Another problem for mutuals is that there is no limit to the number of stakeholder pensions that an individuals can have - up to current maximum contribution rates of £3,600 per annum,” said Philip Lawrence of www.carpetbagger.com.
Edinburgh-based Standard Life has been one mutual under intense pressure to demutualise and is also the only mutual to offer stakeholders’ access to the ‘with-profits’ fund.
“A one-off £20 contribution gives access to membership rights and potential demutualisation windfalls but access to the ‘with-profits’ fund can sometimes, as in the case of Scottish Widows, give enhanced membership and windfall rights,” added Lawrence.
However Graham Storrie, assistant general manager of Standard Life, disputed the carpetbaggers’ claim and said that so far the mutual has seen no evidence of single premium stakeholder pensions. But he added that numbers of people opting for single premium stakeholder pensions would be kept under review.
“In any case we have a three-year rule in place that excludes memberships rights that dissuades that kind of poor quality business that we do not want,” he added.
Lawrence however added that the legality of this rule is likely to be challenged in court.
Standard Life has also been the subject of increased speculation that it may demutualise after the news that Scott Bell, the group managing director, is due to retire at the end of this year. Bell has, in the past, been one of Standard Life’s staunchest defenders of mutuality.
Storrie added; “The board unanimously supports the company’s mutual status so his retirement does not bring that discussion back to the table.”
Other mutual stakeholder pension providers such as Nationwide Building Society, Liverpool Liver, Wesleyan and Teachers are also being targeted by the carpetbaggers.
By Scott Anderson
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