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Recycle path

Life offices are enjoying a boom in sales or are savers merely recycling old plans?

Over the past few months, the numbers being banded around suggest that we have suddenly become a nation of savers.

The life insurers certainly seem to be enjoying a revival – you only have to look at recent company results. Only last week, we learned that sales under the Norwich Union brand leapt by 35 per cent to 13.bn (most of those sales coming through inter-mediaries). Prudential’s sales rose by 14 per cent and Legal & General had a bumper year, with UK life, pension and investment sales jumping by 46 per cent. Similarly, buoyant sales have been reported by St James’ Place, where pension sales nearly doubled in the past year.

It is not just the life and pension industry which has shown signs of rejuvenation. Sales of unit trusts and Oeics have recovered significantly, with net retail sales almost doubling in 2006 from 8bn to 15bn, buoyed by sales in December of 1.7bn – the highest monthly total since last March. Sales last year were the highest in six years and were at the second-highest level on record – just 13 per cent behind 2000 when the technology boom was in full swing.

There is no doubt that A-Day has been a major factor in the increased sales from life offices. The new flexibility afforded by the biggest shake-up in the pension industry for half a century has opened up more doors for many people planning their retirement.

But perhaps it is all nonsense that the British public are now a bunch of eager savers and that the surge in sales is nothing more than “old” money being moved around different providers. Investment bank Bears Stearns certainly thinks so, pointing to the churning of group pensions. The bank has already forecast that pension sales are likely to fall this year.

Ned Cazalet, the vocal insurance analyst, has been arguing for some time that most of the new life and pension money is recycled business from rival insurers and not fresh money from people on the high street. He reckons that gross sales should be taken with a pinch of salt because they are never a true reflection. Net sales – which take into account money that has been surrendered – are what matters and they have been declining in recent years, he argues.

Cazalet has always quizzed insurers on why they never talk about the clients they have lost. “Do we really believe that people have suddenly discovered money under their mattresses and are investing in pensions?” he has said. He makes an interesting point. After all, a year ago, Legal & General admitted its “focus remains on the pension transfer market”, a strategy that app-ears to have paid dividends.

Recycling may also have been a major contributor to the boom in unit trust sales. I have no doubt that rising stockmarkets and stellar returns enjoyed by many funds (emerging and commodity funds, in particular) have helped support sales. But perhaps the demise of the with-profits industry and the emergence of the self-invested personal pension market are making a major impact, too. This is not my suggestion but the opinion of IMA chief executive Dick Saunders.

Saunders is perplexed why sales of Isas keep plummeting while funds outside the tax wrapper are increasing sharply. The last time the man on the street rushed to buy funds in 2000, most piled into Isas but not so this time. The dividend tax credit may have disappeared since – but that will have been lost on the masses and I doubt it is a huge factor in their demise.

The IMA has yet to investigate the situation but Saunders suggests, anecdotally, that people are ditching their poorly-performing with-profits bonds and replacing them with mutual funds. Second, pensions are being transferred into Sipps, which are dominated by fund platforms. Put simply, more and more investment products are now fund-based, hence the reason for the increase in sales.

At a time when recycling cartons and bottles has bec-ome the norm, perhaps the recycling of financial prod-ucts has become de rigueur too and this is the real reason for the boom in sales.

Paul Farrow is money editor at the Sunday TelegraphMoney Marketing

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