New dawn fades for the stakeholder

As two new, low-cost products go live to encourage us to save more, Sam Dunn finds providers are looking the other way

There's no fanfare, little optimism, pitiful support and a desperate outlook. Yet in three weeks' time, the final pieces of the flagship Government "stakeholder" savings scheme fall into place.

There's no fanfare, little optimism, pitiful support and a desperate outlook. Yet in three weeks' time, the final pieces of the flagship Government "stakeholder" savings scheme fall into place.

Following on from the low-cost stakeholder pension launched in 2001, lenders will, from 6 April, be able to offer two new stakeholder products. One is a fund investing your money over the "medium term" (at least five years) in equities and bonds, the other a simple cash deposit.

The former has no upfront fee, annual charges are capped at 1.5 per cent and you can invest monthly sums as small as £10. The latter must carry interest of no less than the Bank of England base rate minus 1 per cent.

The key to their popularity with savers is how these stakeholders will be sold: whether bought from an independent financial adviser (IFA) or in a bank or building society, a series of scripted questions for advisers should make it easier for people to understand what they are buying.

It's all part of the Government's stakeholder dream to encourage more people on middle and lower incomes to save for their retirement - and cut the state's future welfare bills.

But just as the original stakeholder pension has suffered from poor take-up, so hopes are fading for the new schemes.

Most lenders, including life companies and high-street banks, are not bothering to offer them. Prudential, Legal & General and Barclays - household names with millions of potential customers - have turned their backs. And while Norwich Union is preparing to launch a "medium term" savings product, it has shunned the cash option. Few IFAs are gearing up to sell either product.

Publicly, attention will be captured instead by the launch of the much-hyped child trust fund on the same 6 April date, a version of which is also a stakeholder. But many providers are shunning this as well.

Great things had been expected of this suite of four products designed by Ron Sandler, former chief executive of the Lloyd's of London insurance market, to be "simple products, simply sold". Indeed, there had even been plans to launch a fifth product, a form of with-profits fund that would "smooth" returns by holding back gains during times of strong stock market performance to cover for the bad times. But these were junked as too complicated to fit in with the stakeholder ethos.

So where has it gone wrong?

The chasm between firms seeking to make money and a Government wanting better- value savings products has not been filled; low charges and low commission continue to put off most providers and IFAs. Banks that might have put some effort into selling stakeholders will are focusing instead on rather more profitable products.

There's also the question of your returns. According to Prudential research, for example, the design of the "medium term" stakeholder means there is only a 64 per cent chance of savers getting a return above 4 per cent over the five years.

On top of that, the UK financial services industry continues to suffer from a lack of public trust due to scandals such as endowment and pension mis-selling. As a general rule, consumers still have to be sold financial products rather than actively buy them. Despite robust sales of mini cash individual savings accounts (ISAs), public appetite for products - particularly those investing in stock markets - remains small.

The new basic advice scripts are supposed to help restore confidence through simplicity and transparency, yet have been criticised for being too rigid. Many IFAs believe such narrow advice doesn't take individual financial needs into account. They also point out that, under the new system, advisers without formal qualifications will be able to sell stakeholder products.

Some industry bodies are putting up a resolute defence in the face of adversity. "The proof of the pudding will be in the eating," says John French of the Association of British Insurers.

"We'll work with the Government and the industry to try and make them work, and identify things to make them work better."

However, the lack of promotion of stakeholder products is not just a charge for the industry to deal with, claims Mr French. "It's a case of the Government informing people as well." But, he adds, "there's always more we can do."

The Treasury, involved in stakeholder rules and promotion, is upbeat but won't give any indication of the support it has received. Discussions have indicated " strong interest" from insurers, banks and building societies, says a spokesman, and the Treasury expects many to enter the market eventually.