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This week in Pensions

Lots of people moan, and often justifiably so, that journalists are only interested in bad news. It was the late great trailblazer of tabloid journalism William Randolph Hearst who once said news is something somebody doesn’t want printed, all else is advertising.

He also, incidentally, advocated the assassination of President McKinley in an editorial months before the US President was gunned down by a deranged anarchist in 1901. If not prophetic, he was certainly forthright.

So amid all this talk about churning, poor persistency rates, unprofitable firms and hopelessly skewed business models it was refreshing to hear consultant Ned Cazalet talk about the abundant opportunities for the life and pensions market at a recent conference.

Cazalet believes changes in socio-economic conditions and developments in the market have created huge opportunities for firms which adapt their business model away from one reliant on new business and commission.

He pointed out that the UK household sector net wealth has rocketed from GBP3 trillion in 1991 to almost GBP6 trillion in 2004 at 2004 prices – a growth of 4.8 per cent p.a. in real terms.

He highlighted the increase in higher rate tax payers, the ageing “baby boomer” population and new markets at the decumulation stage.

He also said there are vast opportunities in the GBP1 trillion defined benefit scheme buy-out sector, which has already attracted heavyweight players such as Paternoster, backed by over GBP500m investment.

Giving further credence to the idea that things are not all doom and gloom in life and pensions former pizza to pubs entrepreneur and director of Pearl Group Hugh Osmond spoke at the same conference about the remarkably rapid rise of his business and his ambitious growth targets.

Osmond explained he planned to use the firm’s GBP7bn war chest to compete with the likes of Paternoster in the DB buy-out sector. No deal, he boasted, is too big.

But Osmond could not leave his lectern without drawing attention to a couple of issues in the pensions industry which urgently need addressing.

He said the big switch of assets backing very long term liabilities into risk free vehicles will damage pensioners, companies and the UK economy.

Switching money away from job creating, wealth creating enterprises is very negative for the economy over the long term, he argued. He also said enabling the Government to borrow artificially cheaply by forcing down gilt yields cannot be a good thing.

Talking about problems, it seems the thorny issue of commission is not going away, particularly after FSA managing director Clive Briault highlighted it as one of its key priorities in its forthcoming Retail Distribution Review.

This week Hargreaves Lansdown managing director Peter Hargreaves entered the debate in typically ebullient style, arguing that indemnity commission will bring about the end of the IFA species. He blames the “stupid, irresponsible life companies for paying unacceptable, obscene, leapfrog indemnity commission”. He says the industry can only survive in a commission regime with the abolition of indemnity commission. “Investment products should have a built-in service charge but no initial commission. That would mean that any investment could be taken over and provide remuneration to the person who looks after the client”, he says.

This, he argues, would put “horrible, inefficient, undercapitalised brokerages out of business” which can eventually return from the ashes to build great businesses.

Say what you really think Peter.


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