Stakeholders in disguise

With less than a year to go before the launch of the new pension, only a few products genuinely fit the bill.

The countdown to the stakeholder pension has begun. With less than a year to go until they launch on 6 April 2001, a number of pension providers are hoping to attract business by claiming that their products are already "stakeholder friendly".

The countdown to the stakeholder pension has begun. With less than a year to go until they launch on 6 April 2001, a number of pension providers are hoping to attract business by claiming that their products are already "stakeholder friendly".

If so, these pensions will not only enable you to switch to a stakeholder scheme next April, but will have the same charging structure. Yet a survey in Money Marketing magazine re- veals that only seven of the 55 pensions that claim to be stakeholder friendly actually meet all the requirements set out by the Government.

Five of the seven are available as personal pensions: Friends Provident, Marks & Spencer Financial Services (M&SFS), Mattioli Woods, Scottish Mutual and Virgin Direct. Flemings Pooled Pensions and Liberty Pensions are aimed at the group personal pension market.

Considering there is less than a year to go until stakeholders are officially with us, the fact that only seven pension providers have made adequate provision is worrying. After all, we're always being told that delaying starting a pension, even by a year, is bad news. So what should we do if we want to start a pension now?

"You shouldn't delay because you need to put money aside and plan for your retirement," says Robert Noach, head of sales and marketing at Liberty Pensions. "But you should start a pension in the right way and opt for a true stakeholder-friendly product."

James Leng, a 28-year-old IT worker who lives in Coventry, has changed jobs several times and has three company pensions. He started an M&SFS stakeholder pension last month. "I was looking for something that allows for the dynamics of working life - a pension that was flexible and easy to take from job to job," he says.

"I picked M&SFS as it has gone out of its way to launch a stakeholder-friendly pension that meets the Government criteria. The company offered clear information and it was simple to set up."

Mr Leng invests £150 a month in his pension but likes the fact that he can change his contributions from month to month if he chooses.

Stakeholder pensions are primarily aimed at individuals on lower incomes - in the £9,000 to £18,000 a year bracket - or no income at all. These are the people who the Government believes struggle to make any pension provision unless they join an employer-sponsored scheme. There is no link to earnings for the first £3,600 of contributions, so even if you are not earning a wage, you can still contribute.

If you earn over £18,000 a year, you can still have a stakeholder pension as they cater for all level of earnings. After £3,600, contributions are linked to earnings along the same lines as personal pensions. The most you can pay in is 40 per cent of the earnings cap (£90,600), or about £36,000.

"Stakeholder is going to have a very broad appeal," says Adrian Boulding, director of pensions strategy at Legal & General. "The Government is primarily targeting those who are currently not making any provision. But it will attract large contributions so it is going to be a classless product."

Most companies employing more than five people must offer employees access to a stakeholder pension by October 2001. So if you want to buy a pension now, you should look for a plan that does not have to be changed or replaced when the legislation takes effect.

The wrong decision can lead to a much lower quality of life in retirement, so the best course is to get quality independent financial advice first.

"Pensions are just too complicated," says Ian Millward, investment marketing manager at independent financial adviser Chase de Vere. "If you go through an IFA, he or she should ensure the plan you pick is stakeholder friendly. If you are not prepared to pay for advice, perhaps it is better to wait until next April."