The financial services industry has attracted criticism in recent years for its over-emphasis on offering att-ractive deals for new clients at the expense of existing customers.
The arrival of stakeholder pensions and the media spotlight on mortgage endowments are clearly two of the major issues facing the ind-ustry today and they have at their heart the treatment of millions of existing cus-tomers.
Despite the fact no Standard Life endowment policy has to date failed to pay off its associated loan, it was very clear from the customers who have contacted us that there is confusion, misunderstanding and a genuine concern among them that their policy will not repay their loan.
We have listened to our customers, considered their needs and now we have responded. We have promised that, providing the company earns at least 6 per cent after tax each year on the assets in which the policy is invested, every endowment policy will meet its targeted value. This promise applies to with-profits policies and policies invested in the managed fund. It will give peace of mind to Standard Life's 1.65 million endowment customers.
Future pensions market
The impact of stakeholder on the pensions market will be significant when it arrives in April 2001.
However, this particular coach and horses has already seen the PIA issue Regulatory Update 64 on pension advice and product providers launching single charge products, not to mention the scramble for panel positions with major distributors.
The pensions market is large and will expand rapidly over the next five years. The key characteristic of products will be single-charge, with stakeholder setting the challenging benchmark of 1 per cent a year.
Distribution will continue to be dominated by IFAs, particularly in corporate pensions where, for example, figures from the ABI show that IFAs write 80 per cent of the total GPP market. Clearly, technology will play an important role in enabling IFAs and product providers to drive down costs.
Existing pension customers
Given all the above, the retention of existing customers by offering them excellent value in this brave new low-cost/low-margin world is a critical issue facing pen-sion providers.
Standard Life has announced that all existing personal pension customers will be repriced to a single-charge basis from April 2001.
The charge will be well within the stakeholder 1 per cent a year and ranges from 0.825 per cent to 0.4 per cent, depending on the size of the fund and the terms of the original product.
Over 750,000 customers will benefit from this initiative and they will not be required to take any action. The company will handle the transition. This allows the customer to enjoy the benefits of the new environment of lower charges and gives them the peace of mind that their existing pension remains very competitive.
To attract new customers, Standard Life will offer a complete range of single-charge pension products. Some are available today, with a stakeholder product to be launched in April 2001.
The existing four-charge personal pension (including GPP) will be withdrawn on December 18. This will allow IFAs a reasonable period to complete the sales process for pipeline business.
A full range of flexible commission options will be available to IFAs on the single-charge products, including level, fund-based and up-front commission – including our new, advanced fund-based commission accelerator.
Listening and responding to our existing customers while at the same time offering high-quality, high-value products to new customers is the critical balance which must be achieved to ensure success in the brave new world.