Much has been recently written about the incentives for pension distribution and that the 1 per cent world, let alone that the 1.5 per cent world, is not really enough to make it worthwhile both for providers and intermediaries.
A recent direct experience may help to highlight this particular problem.
A self-employed husband and self-employed wife of identical ages (both 65 in 2005) decided to pay single premiums to their current pensions.
The woman’s gross premium was £2,564 and her husband’s £3,590. The wife’s premium went to Standard Life, the husband’s to Norwich Union.
Standard Life will not pay commission other than fund-based, which means that I have to wait a year and, according to the quotation, will earn £7.91 in year one.
Bear in mind that the advice provided constituted a quotation, key features document, an allocation spread sheet and a covering letter of two A4 pages plus the additional research.
With all the relevant documents, postage came to around £1. I am not a charity.
Norwich Union on the other hand, (admittedly the premium was slightly bigger), is prepared to pay me £125.64 or about 3.5 per cent. – perfectly acceptable.
Bear in mind that a fee would be less cost-effective and not tax-deductible. Indeed, the commission in this case is effectively “free” as there is no front-end charge and the difference in fund management charges if no commission were taken would take the client about 10 years to recoup.
The main point concerns Standard Life, not that I am necessarily praising by default Norwich Union, who have their own issues and problems.
I would not be at all surprised to learn that last year’s new business figures for Standard Life have declined.If I am right, this will have been due to a variety of factors,one being adverse publicity with regard to their solvency, resulting in them exchanging equities at the worst possible time for gilts(at the regulator’s behest).
We then had the turn-round on mutualisation. Bearing in mind that clients were well aware of the song and dance made about the advantages of mutuality, the volte face that subsequently took place did unsettle many.
A not uncommon question from my clients has been “This is not another Equitable Life, is it?” The Daily Telegraph’s Saturday, Money Section had a whole page devoted to letters expressing dissatisfaction with Standard’s poor handling of clients’ concerns. Not content with having to wrestle with these not inconsiderable problems, the inept management of this big and important UK life insurer now decides to bite the hand that feeds it.
Commission rates across the board have been reduced (including Standard Life Bank which have considerable competitive issues with organisations such as Intelligent Finance and ING).
Although one is sympathetic with the causes that push them to review their cost structures, one can only marvel at how maladroit some managers in big organisations can be.
I find it upsetting that a once great and successful company can make so many PR and business mistakes in so short a time and I can only hope that once the flotation takes place, public accountability will ensure a better quality of top management.