Saving schemes have never been at the top of most consumer’s shopping lists, but that is exactly the challenge facing Delaney Lund Knox Warren, which has just landed the unenviable task of promoting the Government’s new stakeholder pension.
The account will form part of a broader brief, in the shape of the Department of Social Security’s high-profile &£5m pensions business (MW last week).
Delaney must convince those 5 million UK workers without a pension to get one, and the remainder to step up their long-term savings in the face of a massive shortfall in pension income. Even agency chairman Greg Delaney acknowledges he has a difficult brief.
Creating a generic pensions campaign is difficult enough in itself, but the brief also requires the agency to devise ads to promote stakeholder pensions – which are due to launch on April 6 2001 – to the public and insurance companies alike.
They were originally conceived by the Government as a cheap, straightforward alternative to the personal pension, aimed at low-income workers and designed to supplement the basic state pension.
Until last week, that is, when Alistair Darling, Secretary of State for Social Security, threw the pensions industry into confusion. Darling said: “They [stakeholder pensions] have always been intended for moderate earners and higher-income earners.”
Association of British Insurers director-general Mary Francis says: “The idea that stakeholders are intended for higher earners is a new concept. It looks like the Department of Social Security is recognising that stakeholder pensions may not reach their target market and is covering its tracks.”
Other observers believe the U-turn could have been precipitated by the fear of another mis-selling scandal. As a Government-endorsed scheme, approved pensions will carry a CAT-mark, guaranteeing low charges, easy access and reasonable terms. It is possible that people will assume that a stakeholder pension is the best way for them to invest their money, when in many cases it won’t be.
If a worker is relatively wealthy and takes out a stakeholder pension in addition to other long-term savings vehicles, such as an individual savings account (ISA), unit trust or personal pension, then a stakeholder pension is a cheap way of broadening an investment portfolio.
But, as Prudential Retail head of product marketing David Germaine says: “If you are a low-paid worker and can only afford one long-term savings account, there will be circumstances when a stakeholder pension will not be the best investment.”
Delaney tacitly acknowledges there is a potential problem here. He says: “There are a number of pensions options and the challenge is to communicate this and to get people to find out which pension is most appropriate for them. Our campaign will make it quite clear that different people need different types of policy.”
While the DSS will not release its final stakeholder regulations until the end of the month, it has already determined that the insurers will not be allowed to charge more than one per cent of the value of invested funds per year. At the moment they can charge up to six per cent a year, making stakeholder pensions much less profitable for the industry.
Paul Gordon, managing director at Camp Chipperfield Hill Murray, says: “The view in the pensions industry is that it is going to be extremely difficult to make money in stakeholder pensions.”
Delaney concedes that some pensions providers are likely to be sceptical: “The stakeholder concept is brilliant for the consumer because it provides a low-cost pension, where you can vary repayments and transfer the fund between jobs. The biggest obstacle to their success is whether the pensions providers can create the right products and market them in the right way.”
Most of the big pensions providers, however, claim they are committed to stakeholder pensions.
Germaine says: “Stakeholders will put a tremendous squeeze on margins and will force all pensions companies to rethink their business models. The secret will be to capture a high volume of this low-margin business. If you can do that, you will make money.
“The jury is still out on what the degree of take-up will be. It comes down to how successfully Delaney can sell them to the public, in conjunction with the pensions companies. We will probably devote quite a significant ad campaign to stakeholder.”
The Government’s change of heart may have saved the day for stakeholder pensions. When they were intended for low-income workers there was less incentive for the life companies to offer them because, like the banks, they are not particularly interested in paupers.
But now they are targeting higher-income employees there is the opportunity to cross-sell other financial products, which makes stakeholder pensions a far better prospect.
Stakeholder pensions will probably follow the same path as ISAs. Originally intended to bring the less well-off into the savings system, they have proved to be reasonably popular as an additional investment for the better off. Once again, the financially excluded look like being let down.