The DWP is going to change the stakeholder pension rules (SI 2000/1403, as amended six times already). Proposals announced this week in a consultation document include a requirement for a customer's savings to be moved to less volatile investments five years before retirement (ie a so-called "lifestyling"* default option), unless the member chooses otherwise.

Contrariwise, "lifestyling" will not apply to members who joined the scheme before 6 April 2005 unless they request it - but providers will have to write to each and every existing member who has not made an investment choice (and whose rights are not already subject to "lifestyling" as defined here), explaining what lifestyling is, and asking if they want it. In other words, new members will get "lifestyling" unless they opt out; existing members won't get it unless they opt in.

Additionally, when the new stakeholder 1.5% pension charge cap comes into effect in April 2005, the cap for existing members will be held at 1%.

The proposed changes stem from the Sandler Review "Medium and Long-Term Retail Savings in the UK" (July 2002), which found there were a number of problems with the long-term savings industry; for example, the complexity of products and the opacity of terminology. The Review suggested that the answer lay in product regulation: simpler and even more tightly regulated products.

The Government, still convinced the problems essentially lay on the supply side, duly announced the suite of new "stakeholder" products. The maximum permitted annual management charge on stakeholder pensions was set at 1.5% for the first ten years that the product is held, and thereafter only 1%.

The FSA reckons stakeholder pensions can be successfully sold through a new "basic advice" process, which will help to reduce providers' costs and, together with the new price cap, will allow them to reach out to a wider market, particularly people on lower or moderate incomes. Lifestyling* is supposed to make stakeholder pensions "safe" to sell via this basic advice process. Whether any provider will seriously bother remains to be seen: early indications suggest little enthusiasm.

The DWP is aiming to make and lay these regulations in early 2005, to come into force on 6 April 2005. However, schemes which give the Department a letter of intent by that date will be given a year's grace (two and a half years in respect of pre-6.4.05 members) to put the "lifestyling" arrangements in place. Those which decline will be permitted to run on as closed schemes, rather than being forced to wind up as the Regs would otherwise require.

The consultation period will run until 17th December 2004: six weeks instead of the usual 13 weeks, as the DWP really only wants to know if the proposals are deficient in technical respects, not in principle.