1998 is set to be a record year for life and pension companies but the hectic pace of growth seen in 1997 is going to slow, according to a Money Marketing survey of the biggest companies operating in the IFA market.
Growth is forecast to be around 7-8 per cent in 1998 following a startling 25 per cent increase in the market in 1997 and 26 per cent in 1996. But the 7-8 per cent average figure masks a tremendous disparity between the forecasts from different life offices.
Norwich Union, Allied Dunbar and Friends Provident are the most cautious about the overall market, predicting either nil growth or just 0-2 per cent. Standard Life, Scottish Mutual, Scottish Life and Scottish Amicable see the market growing by 5-10 per cent, with Scottish Widows, Clerical Medical, General Accident and Scottish Equitable forecasting that the market will grow by more than 10 per cent.
Norwich Union says its forecast is not because it is unduly pessimistic about 1998, but is a result of the method of data collection required by the ABI following the Pensions Act which had the impact of artificially boosting the official figures in 1996 and 1997.
NU press officer Liz Watson says: "The Pensions Act created a lot of switches from group money purchase to group personal pensions. It was not strictly new business but the way life offices were asked to provide data to the ABI made it look like new business. It gave the figures a one-off boost that won't be repeated. It is the main thing dragging our market forecast down."
Allied Dunbar takes a similar line. Pensions development director Tony Reardon says: "The Pensions Act has now been in force for a couple of years and a lot of the switches have been made. The pace will now slow down."
There were other one-off factors, such as the windfalls, according to Dunbar. Reardon says: "There was a considerable amount of money coming from demutualisation windfalls and a lot of that has been spent or reinvested already. That sort of money will not be around in 1998."
Dunbar believes that growth will pick up again in 1999 but that long-term growth in the life and pension market will be only around 4 per cent a year, only slightly ahead of inflation.
Even the more optimistic do not see 1998 growth rates to match 1997.
Scottish Life revealed this week that its sales growth in 1997 was 35 per cent and it believes that several other life offices, particularly those operating in the IFA market, have enjoyed similar growth.
Replicating that in 1998 will be near impossible, says Scottish Life marketing consultant Alasdair Buchanan.
He says: "We and the market in general have had tremendous growth in 1997. It is difficult to see that happening again in 1998."
The good news is that 1998 is likely to be another boom year for personal pensions. The impact of the pension transfer scandal is wearing off and nearly all the life offices in the survey believe that the message about pension underprovision is finally being hammered home to the general public.
Standard Life group director Tom King says: "We see individual pensions fuelling the market. People are becoming much more aware of being under-pensioned, and the publicity around stakeholder pensions will bring the issue even more to the forefront. There is still a huge amount of catching up to be done."
Allied Dunbar's Reardon says: "The early 1990s were pretty horrific on personal pensions. But the impact of the transfer scandal will be less and both consumers and product providers are becoming a lot more confident."
Some of the boost to sales in 1998 may even come from companies able to cut back on the number of staff handling the transfer review and switching them to selling instead.
Scottish Widows head of marketing David Graham says: "There have been thousands of people across the industry involved in the review. That effort will be going elsewhere by the end of 1998."
Graham is one of the most optimistic of forecasters for 1998 sales. He says that apart from the growing belief that the state will not provide in the long term, the new low-inflation, low interest rate environment will have a long- term boost on sales.
He says: "With medium-term interest rates already down, cash is not a particularly attractive vehicle. Unless there is some market catastrophe, the argument for holding equities is going to get stronger and stronger."
Graham says the new players, such as Virgin and Marks & Spencer, which don't show up in the ABI figures, are also expanding the market and restoring confidence.
Opinions differ sharply on Pep sales. Standard Life sees a last-minute boom while others argue that the uncertainty created by the ISA regime will cut sales. There is much more agreement on mortgage endowment sales, with nearly all life offices expecting a good, though not spectacular year.
The major question marks are over protection products, with-profits bonds, guaranteed products and long-term care cover.
Reardon says: "Protection business has been declining for some time. It is the great untapped market. We have been successful but others have not."
Standard Life's King says: "In the first nine months of 1997, the IFA bond market grew by 9 per cent, or minus 27 per cent if you exclude with-profits bonds. I believe that market has now peaked, as people switch into Peps and ISAs."
A lot of money in five-year guaranteed equity products sold in 1993 will mature in 1998. Scottish Mutual technical director Leslie Gray says: "There is always a good market for guaranteed products, and something has to be done with all the money maturing this year."
But Scottish Widows' David Graham says: "Fancy guaranteed high-income bonds are now too risky."
Business forecasts a few years ago would have talked about the huge potential for long-term care sales. But no one is confident that the potential will translate into real sales for some time. Graham says: "LTC is a very slow burn."
Gray says: "I don't think we will see much growth in long-term care while the royal commission is still sitting. Providers will be sitting on their hands until it reports."
But the forecast for an overall rise in sales does not necessarily mean higher income for IFAs.
The trend in sales is moving away from annual-premium contracts with ind- emnity commission towards single-premium contracts. King says: "It might not translate into higher commission income for IFAs. The biggest growth is in low-commission products."
The tremendous rise in IFAs' share of the market is already showing signs of levelling off and most of the life offices cannot see much more than a period of consolidation or at best a small rise.
General Accident public relations manager Ian Harper says: "IFAs are likely to continue doing well but within direct sales you could see a shift more towards the bancassurers such as Halifax and Abbey National and tied-agency distribution such as our tied arrangements at the expense of direct salesforces such as Allied Dunbar and Abbey Life.
Next week: Prospects for investment sales and returns