Ten stakeholder myths

OPRA gives a list of ten "myths", which it says are discouraging companies from designating schemes. It is concerned that so many have not done so by the October 8 deadline. It describes "the stakeholder myth - a fantastic fusion of imagination, primal fear, base superstition and rumour". But its list hardly qualifies as myths.

Ten real myths are:

1. Charges on a stakeholder pension are capped at 1 per cent.

Wrong! The latest DWP guide states:

"As well as the one per cent, the law allows pension providers to recover costs and charges they have to pay for certain other things. For example, when they have to pay any stamp duty or other charges for buying and selling investments for your fund,"

Where does it say this in the law? The law does not refer to "providers" but rather to "schemes".

2. Stakeholder pensions are low cost.

Wrong again! Large pension schemes are in general far cheaper to administer. The Director's Report of the Danish ATP scheme for the year 2000 states that administrative expenses were DKr 20 (less than £2) per member for the year.

3. There are no charges for transfers between schemes.

Transfers between schemes will incur a cost, especially if as a result, investments have to be bought and sold by the schemes. Who pays? There is likely to be a dilution levy for transfers.

4. The FSA which regulates providers is concerned with protecting consumers.

Wrong! The FSA is financed and controlled by the financial services industry.

5. Stakeholder pensions are a success.

Wrong! "Of the 224,506 plans opened by the end of June, 175,000 involved transfers". Most of the reported sales are transfers from personal pensions, and most of the rest are part of the Building and Civil Engineering scheme. Of the remainder, policyholders seem to be mostly just opting to put national insurance contributions into a stakeholder pension, which is not really saving.

6. The October 8th deadline for designating stakeholder schemes is not going to be put forward.

Since about half of the companies requiring to designate schemes have not bothered to do so by the deadline, it scarcely existed.

7. Stakeholder schemes are all registered with OPRA.

Wrong! The printing industry stakeholder scheme is not registered with OPRA.

8. "For most employers it will only involve a few hours work spread over a week or two". (from OPRA myth 7)

But this is for setting up the scheme. What about ongoing commitments? Under clause 3 of the Welfare Reform and Pensions Act 1999 there are various "requirements" such as: "The third requirement is that the employer shall allow representatives of the designated scheme or schemes reasonable access to his relevant employees for the purpose of supplying them with information about the scheme or schemes." Employers will have to allow salesmen onto their premises.

9. Stakeholder schemes have a collective structure

It is claimed for example in the 1998 green paper Partnership in Pensions:

"using a collective structure, like occupational schemes, to get the best value-for-money for scheme members" (chapter 7, paragraph 15)

"As collective schemes with bargaining power, we would expect stakeholder pension schemes to be able to offer good value access to other arrangements, such as life insurance cover" (chapter 7, paragraph 80)

Wrong! Hardly any stakeholder schemes have a collective structure, since anyone can join. Whereas you can only join the particular occupational pension scheme provided by your employer.

10. "It's a nightmare." (from OPRA myth 2)

Right!