Leading pension providers have condemned life offices that still pay hefty initial commission on group personal pensions, claiming it is is unprofitable and unsustainable.
Friends Provident’s recent decision to stop paying initial commission on new group personal pension business has left Norwich Union, Aegon, Axa and Scottish Widows as the only providers paying initial commission in the market.
Scottish Life head of communications Alasdair Buchanan says their business model is “crazy” and claims that poor persistency means they are making huge losses.
He says: “The business does not last anywhere like long enough and half of cases go off the books in four or five years.”
Skandia head of pensions marketing Nick Bladen says: “I am slightly astounded that Friends Provident had been able to hold on so long. The market will move to customer-agreed remuneration so life offices which have not already done so need to start embracing this. Those that cannot adaptare going to be big losers.”
Standard Life head of pensions policy John Lawson says: “Friends Provident coming out of this must scare the other providers because they will be getting a higher share of an unprofitable market.”
Scottish Widows and Norwich Union say they have no plans to stop paying initial commission.
Aegon says change is nee-ded but it will be driven by the retail distribution review and the introduction of personal accounts.
Norwich Union head of pensions Iain Oliver says: “It is only financially viable if you have got the right level of rigour underwriting the schemes and we have that.”