Workplace GPPs are a bit of an embarassment aren’t they?

A long time ago, before auto-enrolment was thought about, the Government decided to create the stakeholder pension which every employer with more than five staff would have to offer as an employee benefit. The benefit was limited, employers would offer a payroll deduction and er..that’s it. The attraction was supposed to be a guarantee that charges on the plan would not increase beyond 1% pa , until the charges went up to 1.5% pa. But by the time the charges went up, it became clear that the only people winning from these pensions were the insurance companies that offered them.

The stakeholder pension became a quiet disaster. The guarantee on the pension charges cost insurer’s money making stakeholder pensions more expensive than the bog-standard personal pension equivalent. When the sexiness went out of the stakeholder economy, stakeholder pensions were left stranded , an elephant that was anything but personal, anything but portable.

The original idea for stakeholder pension, one championed by Caroline Instance , then CEO of OPRA (the forerunner to TPR), was for stakeholder pensions to be established under trust, which might have worked if the concept of a multi-employer trust  had been under consideration – but it wasn’t so stakeholders ended up under the auspices of whatever predecessor to the FCA was around at the time ( I forget).

But the concept of a group pension written using a bare trust and a contract with the individual was now firmly established and by the time we got to staging auto-enrolment, the concept of group contract based plans written for tens of thousands of staff was firmly in place.;

And the insurance companies loved them. Initially they presented a range of options for intermediaries which included active member discounts and scheme charging – both ways of getting members to pay for the financial advice that these products were  designed for.

Except that the Government banned the payment of what it considered commission and these variants were banned and suddenly what looked like the answer to the RDR, started to look a very expensive alternative to the master trust.

The numbers of insurers offering these products was fast diminishing as some providers withdrew (the Prudential) and some merged (Friends Provident ++). And – with the exception of Royal London, all the remaining insurers (Aegon, Aviva, Scottish Widows, Legal and General and Standard Life) had set up master trusts which were creaming off the exciting opportunities.

Hargreaves Lansdown were still marketing a non-insured SIPP style GPP, but it too was becoming uncompetitive and as staging of employers into auto- enrolment closed, GPP was increasingly becoming an embarrassing product that nobody marketed and insurers wished they hadn’t sold.

The trouble was that because GPPs (and stakeholder pensions) were contracts with employees , there was a need for each saver to take their own decision on what to do with their benefits. Smart savers were taking matters into their own hands and consolidating to the likes of Pension Bee, but most employer sponsored GPPs could not be moved in bulk.

The insurers have now developed ways to coax staff with personal pensions to transfer stranded pots to more modern arrangements but most deferred sacers aren’t accessible and the group personal pension is taking over the white elephant mantle previously worn by stakeholder pensions. Stakeholder pensions are now consigned to the grievous fate of “pension legacy”.

The Government , finally aware that mass market personal pensions add little value and lead to a proliferation of unwanted small pots, is belatedly considering how it can bulk-transfer unloved personal pension pots beyond the reach of the insurer’s coaxing.

But today’s reality is that we don’t know what to do with GPPs -whether “we” are Government, regulators , insurers, advisers or employers. They aren’t disastrous, they just aren’t that good and so long as they aren’t flagship products – which looks like forever, they aren’t getting the development spend of more  strategic alternatives.

Will they be able to participate in the plans for CDC? Not unless a contract based CDC variant is developed.

Will they be advised? Not unless someone finds a way to provide the advice that’s needed at a price that savers want to pay.

Will they be consolidated? Only if the consolidator shows the kind of proactive genius of Pension Bee.

Will they be on the pension dashboard? Only if the pension dashboard happens.

And none of this looks like happening soon.