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In with the new

David Baker, legal director at Sipp and wrap consultant Wealthtime, says that it pays to treat life companies’ new business figures with caution

The recent statements from providers indicating their Sipp new business figures make, on the face of it, encouraging reading.

They show that the A-Day changes have made a big impact on Sipp sales and this seems to be mirrored, though to a lesser extent, by independent Sipp providers.

However, at least as far as life offices are concerned, one should perhaps treat these figures with a certain amount of caution.

Life offices’ new business figures rarely mean what the phrase would imply to a layman – that is someone not educated in life office speak. They do, for example, usually include monies coming into one product from another product within the same life company.

In the case of Sipp new business, premiums that were originally being directed into a traditional personal pension that are redirected to a new post-A-Day Sipp-style product will probably be classed as new business because it is new to that particular product. The termination of the premiums that were being paid to the previous product will be shown in the small print, if at all.

I once worked for a life office that proudly proclaimed (at the time) that it was the fastest-growing life office in the UK. It achieved this distinction, partly at least, because some major final salary schemes it ran were winding up, so annuities were being purchased and group money purchase schemes being set up on the proceeds. These it counted as new business, yet it was in reality just monies already invested with the life office being moved to different pots.

So new business figures can be misleading. On the other hand, I suppose that where a new contract is set up, particularly in circumstances where more commission is payable, it is really new business in the strict sense of the word in that it represents new monies into that product.

And precisely because commission will generally be payable on a switch from, for example, a personal pension to a Sipp, it is important to ensure that such a switch is really necessary.

True, the policyholder now has a more flexible product but does everyone who switches really need this? And would it not be easier for life offices to offer increased flexibility within the existing product the client is contributing to?

But then it could not count as new business.

In the case of a new Sipp provider which previously white labelled another provider’s Sipp, switches from that Sipp to its own Sipp are also, I suspect, counted as new business, which again on a narrow definition they are. But in reality it is the same investment money with a different label stuck on it. New from the provider’s point of view but hardly new business in any meaningful sense of the word.

Life offices’ new business figures mean whatever they want them to mean because there is no clear unambiguous and simple definition of the concept. This would be difficult to achieve because it can be classified in so many different ways.

I suppose one could say does it really matter? It is not like investment returns, where the policyholder is directly affected financially.

Yet it could mislead a potential client into thinking that a particular life office must be good because it is successful in getting lots of new business. Is this really treating the customer fairly?

Finally, if one were to accept all the bullish claims of the life offices since A-Day, about the growth in new business, taken collectively they would indicate an enormous rise in the number of people now taking out a pension who did not previously have provision.

If this is true, then A-Day reforms have achieved a general increase in saving for retirement. If, however, this new business is really recycled business, where product switching is happening because it suits companies (and their shareholders), is this in the best interests of the customer?

Are their interests really being given due regard?

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