Stakeholders are a flop - CGNU

STAKEHOLDER pensions, the Blair Government's grand plan to encourage low-income earners to save for their retirement, are proving a dismal failure, Britain's biggest pension provider has warned.

The scheme, launched with great fanfare early last year, is aimed at providing low-cost pensions to those who would not otherwise be putting money aside for their retirement. But CGNU executive director Philip Scott said most of those investing in stakeholders would have put their money into more-conventional pension products anyway.

Scott said the idea that lower management fees, which in some cases were just one quarter of a percentage point less for stakeholders than ordinary schemes, would convince people to save for retirement was flawed.

Instead, he said the Government needed to make radical changes to the complex laws governing pensions, making them more user-friendly and easier to access. 'If the principal objective was to increase the savings of those on average or below average incomes, which was the espoused objective for the Government, I would say they are not working,' Scott said.

'There is no really new incentive for people to change their savings patterns. Just because there is an additional product on the shelf doesn't change people's buying patterns. They are not penetrating greatly into the target market. Price is not a very important factor in making people decide if they are going to save or not.'

CGNU, which trades under the Norwich Union brand and has 11% of the British pensions and savings products market, has sold £300m stakeholder pensions since they were introduced in April last year. Scott said he believed 'quite a lot' of that would have been invested in personal pension plans if stakeholders did not exist.

CGNU unveiled record sales figures for 2001, underpinned by strong results from its UK pensions division. Sales measured on the widely-accepted basis of annual premium equivalent were 12% higher for the year at £2.5bn, helped by a 23% rise in the fourth quarter. The results were about 7% ahead of market expectations and the shares rose 41p to 877p.

Scott declined to comment on speculation that CGNU would cut its dividend when it announces full-year results on 27 February. House broker Cazenove said in a research note at Christmas that it 'would not rule out the slight possibility of a reduction'.