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Crunch time on pension transfers

The scale of the pension transfer crisis looming over the UK&#39s biggest

providers is starting to hit home as research shows thousands of customers

could be better off transferring plans.

Figures calculated for Money Marketing reveal many policyholders with high

early transfer value pensions are likely to benefit from switching their

plans to lower-charging stakeholder-style plans.

Many customers could benefit by as much as £10,000 if they move their

plan. The figures, while bad news for some of the biggest providers,

reaffirms the need for IFAs to revisit their clients to ensure they have

the best deal for their retirement.

The crisis surrounds those life offices which have offered high values on

transfers made during a plan&#39s early years. These include CGU, Norwich

Union, Scottish Amicable, Scottish Equitable, Scottish Mutual and Standard

Life.

Because the life offices offer such high transfer values in the early

years, they are unable to recoup much of the investment in initial start-up

costs such as commission if the plan is switched in the first seven or

eight years.

Providers could lose billions of pounds as clients take advantage of

moving to the new lower-charging structures offered by stakeholder-style

plans.

The figures show the projected maturity values policyholders can expect on

their existing plans based on a premium of £200 a month over 25 years at

the PIA-assumed growth rate of 7 per cent. These figures are then compared

with the projected return based on the stakeholder 1 per cent charging

structure.

NU&#39s customers are likely to pick up nearly £10,000 by switching from

their existing plan to a stakeholder-style plan.

Standard Life senior technical manager Margaret Craig says: “The person

used for the calculation would be better off transferring. But another

person with different circumstances would potentially be better off staying

where they are. You cannot say it will be the same for everybody but it

strengthens the argument for good advice.”

Wentworth Rose managing director Philip Rose says: “These figures provide

justification for IFAs to go back and review their cli-ents&#39 pensions.”

Towry Law Fraser Smith regional manager Patrick Murphy says: “It was

always going to be a problem when companies brought these plans out. They

are likely to take a massive hit if lots of people transfer out of these

plans once the commission earnings&#39 period has ended.”

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