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This week in Pensions

I have been advised by a certain PR whose surname almost rhymes with rude not to faff around in my web blogs and kid myself there is anything remotely creative about my job.

For all this time it seems I was labouring under the false impression that readers would be interested to know that an Asp is not only an archaic term for a species of poisonous snake, it is also a fish found in European waters and a type of venomous hairy caterpillar.

So out go the facile links, puns and thought provoking trivia.

Legal & General pensions strategy director Adrian Boulding says the FSA should focus any investigation into contracting out on IFAs and providers that targeted unusually high numbers of customers over the pivotal age.

Boulding says a pension review-style investigation would be an over-reaction, especially since the FSA admitted in February this year that it had found no evidence of widespread misselling in its work so far.

The regulator, which is set to publish details of its findings early next year, says it has not yet investigated any firms. But it concedes sales to people over the pivotal age could be one of the areas covered.

Perhaps unsurprisingly, Boulding says internal investigations have found a low concentration of sales above the pivotal age at Legal & General. But he says the FSA will find pockets of IFAs and providers with an unusually high concentration of sales above the pivotal age.

But Money Marketing has been assured by sources the FSA is convinced between 200,000-250,000 people above the pivotal age contracted out between 1987/88 and 1996/97, creating a potential compensation bill of almost 3bn. So, even if a sweeping investigation is avoided the industry could be left with a sizeable bill.

Assuming the above figures are correct, there are other factors apart from age to consider when contracting out – such as flexibility, attitude to risk, and whether the customer wanted to retire early and take tax free cash. So many would argue a 3bn compensation bill is highly unlikely.

But, as Informed Choice director Martin Bamford believes, targeting firms which contracted out a high proportion of customers above the pivotal age may be a sensible starting point for a proportionate review of contracting out.

Elsewhere Standard Life has hit back at allegations it is one of the worst churners in the industry, arguing that only 15 per cent of its Sipp business stems from its personal pension.

The report, entitled The DNA of Life, by city analyst Fox-Pitt Kelton names Standard Life, HBOS, Prudential and Aviva as churners.

It measures persistency by calculating whether new business premium growth translates into reserve growth.

Lloyds TSB, Old Mutual, and Legal & General showed the highest persistency rates in 2005, with net outflows of 9.1 per cent, 8.5 per cent and 7.4 per cent respectively.

Standard, according to the report, has seen temporary improvement in persistency rates to 6.9 per cent in 2005 as policyholders held out for demutualisation windfalls but the report expects total outflows at Standard to return to pre-2005 levels of 11 per cent in 2006. It says it would not be surprised by a temporary spike higher than the firms historical average with last years potential lapses adding to the natural lapses in the current year.

The report also claims the firms attempts to cut expenses could reduce service levels, leading to a higher lapse rate and predicts Standard will book additional charges for worsening persistency in addition to the 19m budgeted for post-demutualisation lapses.

But Standard has hit back, arguing its net results have been stronger than those of many of its rivals and, despite persistent allegations of internal churning into its Sipp, only 15 per cent of its new business is transferred from its personal pension.

A spokeswoman says:

There is a growing call for net flow reporting to address the issue of churn and how it impacts new business reporting. Using a net flow based measure Standard Life has consistently been at the stronger end of the peer set, with an approximate average ratio of 80 per cent (i.e. inflows higher than outflows).

She adds: Churn is an industry issue. Standard Life’s new business results demonstrate its Sipp business is not heavily reliant on internal churn. Only approximately 15 per cent of new business is generated by Standard Life pension surrenders. Approximately 85 per cent of Sipp new business therefore relates to new Standard Life money.



Is there a need for greater clarification of the relationship between advisers and providers where the provider has a stake in the adviser firm?Yes 75%No 25%No “I don’t think it makes any difference as the compliance structure is so strong that the potential for IFAs to be churning or favouring a provider is nowhere near […]

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