A stake worth holding?
From this month, salesmen will be offering the low-paid a new type of pension. But Martin Vander Wey
Students of political language will relish the reappearance of "stakeholder". Once a power-word of the 1990s, it was so ideologically loaded that for a while new Labour found it too hot to handle; but now, like an almost forgotten hostage, it has emerged blinking into the light as the brand name for the government's personal pension scheme.
Like all such words when used by politicians or corporate chiefs, it warns us of rhetorical sleight of hand, of an attempt to make something sound more benevolent and life-enhancing than it really is. Think of "community" in "care in the community"; or "sustainable", as used in company profit statements to suggest concern for the environment; or virtually any use of the word "inclusive". So the "stakeholder pension", operational as of the next financial year, seeks to suggest something more significant than a mere savings scheme.
In its 1990s usage, stakeholding referred specifically to the idea - popularised by Will Hutton and John Kay - that employees, suppliers, customers and the community at large all had stakes in any given business comparable to the ownership rights of shareholders; and that managers had a duty to run the business in the interest of all stakeholders, rather than merely in the financial interests of owners.
Tony Blair picked up the concept and enlarged it, in a speech in Singapore in January 1996, into an all-embracing "stakeholder society", which looked briefly as though it might be the big idea for his manifesto. But it played badly with focus groups (in one poll a month later, three-quarters of those asked had no clue what the phrase meant) and even worse with business leaders, whom Labour was trying urgently to befriend. So it was buried with scarcely another mention, and the loaded word itself was dropped from the Downing Street lexicon - until a use was found for it at last, to add sex and gravitas to personal pensions.
But does the scheme live up to the claim for social justice that is packed into its name?
In fairness to Alistair Darling, the social security secretary, the stakeholder scheme sets out to avoid the invitations to malpractice of personal pension arrangements nurtured by the Tories. What seemed a perfect expression of Thatcherism - encouraging personal responsibility, reducing the burden on the state - turned into the "mis-selling" fiasco, in which hundreds of thousands of people were lured by incompetent or dishonest salesmen into pensions that would have left them worse off than the established schemes they had opted to leave.
The first personal pensions carried hefty fees to get in (upwards of 7 per cent), with even heftier penalties to change or get out again, and they often produced rotten returns.
The stakeholder scheme, by contrast, imposes a maximum 1 per cent annual fee and allows the holder to stop, restart or change the level of contributions, or transfer to a new pension provider, at any time without penalty. So far so good - even if the terms are so tough on providers that it will take a decade for them turn a profit, creating a risk that only the biggest will stay in the market, while smaller providers pull out and leave their customers adrift. But where the scheme goes seriously astray is in its much-trumpeted ambition to reach parts of the population that even the most persistent pension salesmen never reached before: five million people in the £9,000- £20,000 income bracket.
The first problem is that those at the lower end of this bracket simply do not have the habit or the means of saving. Even the minimum £20 monthly stakeholder subscription may be beyond them; and, so far, despite heavy advertising, nine out of ten of those with no pension arrangements in place say they have no intention of taking out a stakeholder plan.
What is worse, if they do take one, those at the lower end of the bracket may find themselves - just like the previous set of victims - poorer than they would otherwise have been. They may finish up with too small a pension to live on, but too much to allow them to qualify for certain means-tested state benefits. In a classic example of the over-complexity of Gordon Brown's approach to tax and benefits, a modest stakeholder pension could wipe out entitlements under the minimum income guarantee and pension credit schemes, as well as rebates of rent and council tax. The unhappy recipient may be left with the suspicion that the plan was designed not so much to help him pay for his old age, as to help the government not pay for it.
The scheme will prove equally unpopular with another section of "the people". By the autumn, when the stakeholder scheme will come into full effect, Britain's small businessmen, never slow to complain, will be obliged to set up staff pension schemes if they have five or more employees. Even though they will not necessarily have to contribute to these funds, the cost of administering them will add to the burden - put by the Confederation of British Industry at £12.3bn a year so far - of what is known in small-business circles as "Tony's red tape". Around 250,000 employers will have to comply or else face £50,000 fines.
On the other hand, the stakeholder scheme looks like a winner for the kind of people Brown is least eager to help: the already well-off and well-advised. Since the maximum £3,600 annual stakeholder allowance can be invested on behalf of a non-working spouse, a fat-cat banker who already has ample pension provisions of his own can use it to cut his tax bill and provide his wife with a nice little pension as a Christmas stocking-filler, instead of a diamond necklace.
The allowance can also be used to establish pension funds for children, though the money will be untouchable until they reach the age of 50. A rich grandfather, himself already enjoying the benefits of well-cushioned retirement, can pay full stakeholder contributions for a favourite granddaughter until her 18th birthday: in doing so he will reduce his remaining assets for inheritance-tax purposes, while she will be sitting on a fund worth £425,000 by the time she is 50.
Far from achieving the Chancellor's aim of stealthily redistributing the national cake, the stakeholder scheme looks set to put more icing on the slice devoted to dynastic wealth.
Meanwhile, independent financial advisers and pension providers are feverishly at work devising tailor-made schemes for other categories of sophisticated customer. Massow Rainbow - run by Ivan Massow, who was tipped as a Tory candidate for London mayor before defecting to Labour last year - offers a scheme designed to fit stakeholder rules while catering specifically for gay investors by paying death benefits to same-sex partners.
As with ISAs and the whole gamut of tax reliefs and credits, it is those with time and cash on their hands who will read the small print and gain the advantage. The unsophisticated and hard-pressed - the housewife working part-time in a call-centre or a nursing home, for example - most likely will not. The stakeholder scheme is an improvement on what went before, but it will not make the poor less dependent on the state, nor hand them a stake to hold unless they themselves make the leap required to grasp it.
In that sense, its portentous name will serve only as another reminder of the gap between reality and political rhetoric.
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