Life assurers rake in billions from pension transfers-by Oliver Ralph and Josephine Cumbo in London

Standard Life Aberdeen and Royal London among biggest beneficiaries from £50bn flow

Life assurers rake in billions from pension transfers Standard Life Aberdeen and Royal London among biggest beneficiaries from £50bn flow Regulators fear the large number oif pension transfers could lead to a new mis-selling crisis © Chris Batson Share on Twitter (opens new window) Share on Facebook (opens new window) Share on LinkedIn (opens new window) 19 Print this page yesterday by Oliver Ralph and Josephine Cumbo in London Britain’s biggest life assurers have gained billions of pounds of new business as a result of contentious pensions reforms. In the past two years, about £50bn has been released from corporate pension schemes as tens of thousands of people swap their guaranteed retirement income for a lump sum, according to Mercer, the consultants. One pensions administrator, Broadstone, said that Standard Life Aberdeen, Royal London, Prudential and Aviva had been among the biggest beneficiaries of the pension transfers it has processed. Standard Life Aberdeen is one of the few companies to disclose details about the amount of money it is taking in from defined benefit transfers. In the first half of this year, Standard Life took in about £900m to its drawdown products from the transfers. Standard Life completed its merger with Aberdeen Asset Management in August. Aviva’s platform business, which allows customers to hold several financial products in the same place, took in about £750m from defined benefit transfers in the same period. £38,000 Charges over 20 years on a Standard Life Sipp from a £500,000 investment Other companies do not provide similar breakdowns, but their wider pensions businesses are clearly booming. Royal London’s overall sales of individual pensions and drawdown products jumped 64 per cent in the first half of the year. At Prudential, drawdown sales were up about 30 per cent, while LV’s overall pensions business grew by a similar amount. Earlier this week, St James’s Place reported £5bn of inflows into its pension business in the first nine months of the year. A combination of new freedoms on how people spend their pension savings and a sharp rise in transfer values for those in defined benefit plans has led to a boom in transfers, which regulators worry is creating the potential for a new financial mis-selling crisis. The Financial Conduct Authority is investigating whether independent financial advisers are giving suitable advice on transfers, where savers swap monthly payments guaranteed for life for a lump sum which they then invest in a personal pension plan. The parliamentary work and pensions committee is also planning an investigation. The transfers are a lucrative source of long-term income for assurers, which have suffered as sales of traditional pension products, such as annuities, have shrivelled in recent years. Putting £500,000 into a Standard Life Self-Invested Personal Pension (Sipp) for 20 years, for example, would generate £38,000 in accumulated charges. “If you get the money, you have 20 years of fees coming through,” said David Brooks at Broadstone. Over the last 30 years, the words life insurance and mis-selling have gone together like horse and carriage Ned Cazalet, Cazalet Consulting As a result, the assurers have not been shy in helping financial advisers who provide guidance to pension scheme members. Commission payments to advisers have been banned since 2013, but the insurers are doing what they can to assist them. Some companies, including Prudential and Standard Life, pay for valuation reports, called TVAS, which are a vital part of the transfer advice process. These reports can cost hundreds of pounds if bought independently. Other companies provide advisers with useful information. Scottish Widows, for example, has a dedicated pension transfer website, giving advisers guidance on how the transfers work. “I see a lot of providers commenting on transfers, providing articles and assistance,” said Mike Morrison, head of platform technical at AJ Bell. But Alistair Cunningham, financial planning director with Wingate Financial Planning, said the “increasing number of insurers offering training and marketing material is concerning, particularly as some is not as impartial as I would hope”. “Insurers seem in a unique position where they gain custodian fees for assets transferred on, but may well try to shrug off any responsibility where the advice fails subsequent suitability tests,” he added. Recommended UK retirees using ‘pension freedoms’ for alcohol and gambling FCA urged to launch full probe into pension transfer advice Regulator warns on poor advice over cashing in pension pot However, assurers say the guidance they provide gives them comfort that advisers are giving good advice. “We provide a lot of ammunition to help advisers reach the right decision, so we don’t have the same concerns that we might do otherwise,” said Vince Smith-Hughes, head of pensions business development at Prudential. Ned Cazalet, head of Cazalet Consulting, said assurers were aware of the risks associated with transfers. “Over the last 30 years, the words life insurance and mis-selling have gone together like horse and carriage,” he said. “The memories of mis-selling have not gone away and the industry has had to pay millions in redress. This is an area where people are treading gingerly.”
Culled from Financial Times