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Equitable fiasco leaves AVC market in turmoil

UK- The market for additional voluntary contributions (AVCs), the system allowing scheme members to top up their occupational pensions, is in turmoil according to a new survey from the consultants Hewitt Bacon & Woodrow.

The 2002 AVC Survey shows the market is suffering from a combination of the fall-out from the Equitable Life debacle and the introduction of stakeholder pensions.

One hundred and seventy four pension schemes were asked to rate the level of service and administration from AVC providers between 1 (poor) and 5 (excellent). Average scores are down more than 20% from 3.3 to 2.7 in the past year.

Chris Cairns, AVC specialist at Hewitt Bacon & Woodrow, says the scramble to replace Equitable Life has stretched many providers' administrative systems and resources.

“Many of these systems are being integrated with the stakeholder platforms that providers put in place for April 2001, but it is too early to see any positive impact on service levels as far as the majority of AVC arrangements are concerned."

"It is a sad reflection of the state of the market that, despite all its problems, Equitable Life's administration rating was better than half the providers we surveyed,” she says

Cairns says the survey offers little evidence that the number of members paying AVCs and the levels of contribution have increased notably during the year.

Once a quiet backwater dominated by one provider, the AVC market has evolved into a competitive, multi-manager savings product offering electronic administrative and sophisticated, customised reporting.

Internet capability is now viewed as an important element of many providers' AVC arrangements, with half the providers in the survey offering members the ability to carry out AVC transactions over the Internet.

In contrast, many schemes appear reluctant to modernise with only 3% allowing members access to their AVC account online. More surprising is that four out of ten schemes have no plans to introduce online access.

Elsewhere, the survey finds that the introduction of stakeholder pensions has had beneficial effects on the AVC market. Charges on AVC contracts have come down from an average of 0.8% last year to 0.7% this year - well below the 1% maximum stakeholder charge.

It also suggests that members are at risk of being overwhelmed by the choice of funds on offer. An average scheme now offers 11 separate AVC investment options while one provider offers almost 300 funds.

Says Kevin Wesbroom at Hewitt Bacon & Woodrow: “experience in the US suggests that in the face of excessive choice, many members will simply defer taking action. We cannot afford this to happen."



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