INSURANCE companies are so obsessed with mopping up new business in the run-up to “pensions simplification” next April that they are treating many existing customers unfairly, according to pensions experts.
Some insurers are using simplification – which rewrites the rules on the taxation of UK pensions from next April 6 – as an excuse for providing slow service on fund transfers and payment of benefits.
David Trenner, a director at Glasgow-based adviser Intelligent Pensions, said: “With pension simplification due in April, the insurers’ focus appears to be on getting their systems ready in anticipation of the new business they hope to attract, rather than speeding up the payment of money to people retiring. But what are insurers for if not to pay out benefits when they are due?
One insurer, Clerical Medical, which is owned by HBOS ,recently launched an investment bond that proved very successful. At the same time, its turnaround time on retirement income processing rose to 21 working days.
“But if it took 21 working days for the chief executive’s salary to be paid into his account, then I’m sure the matter would soon be resolved as a matter of urgency.”
Phil Hodkinson, chief executive of Clerical Medical, earned basic pay and cash bonus of £704,000 last year, while HBOS chief James Crosby earned £1.48 million. At December 2004, Crosby had a pensions pot worth £7.4m while Hodkinson, a former executive of both Allied Dunbar and Zurich Financial Services, had one worth £608,000.
Trenner said: “Treating customers fairly is a vital aspect of an insurer’s service and, to my mind, there’s no question that those insurers that fail to pay policyholders their money on time are treating them unfairly.”
Trenner believes the matter has been exacerbated by the headlong rush of life and pensions firms to win new business in the run-up to A-day, when nine separate tax regimes on UK pensions are unified.
“The insurance companies are using the peg of simplification as the basis for a big sales push. They’ve become so focused on winning new business that existing customers are being treated as second-class citizens.”
Trenner said the inertia and lethargy of existing customers who have already bought a pension is one reason why the insurers believe they can treat their existing customers “shabbily”. Britons rarely switch providers once persuaded to part with their cash by an independent financial adviser (IFA).
Clerical Medical is not alone in Trenner’s hall of shame. He said Prudential lacks enough customer services staff of a sufficient calibre to field enquiries, and is taking six months to answer even basic queries. He said: “I have had a couple of experiences of that.”
He said Sun Life of Canada recently lost an Intelligent Pensions customer one week’s value because the insurer sent a maturity cheque by second-class post. He added that companies that have closed to new business — such as Abbey subsidiary Scottish Mutual and Britannic subsidiary Alba Life — have even less interest in treating existing customers fairly since they are not actively pursuing new ones.
Since the Treasury proposed collapsing the nine sets of rules governing personal pension saving into one, experts have discovered extensive tax breaks afforded to the wealthy. For example, they will be allowed to hold holiday homes and buy-to-let properties in Sipps.
Tom McPhail, head of pensions research at IFA Hargreaves Lansdown, warned that simplification is much more likely to benefit those on higher incomes, making little difference to the lower paid. He also warned they will do little to tackle the issue of pensioner poverty, a feeling endorsed by work and pensions secretary David Blunkett.
But the insurers see it as a ticket to make hay. Richard Harvey, chief executive of Norwich Union owner Aviva believes simplification together with Adair Turner’s report on pensions should boost saving.
He said: “The changes ought to make it easier to see what’s going on and if people can no longer say ‘I didn’t realise I’d have to reduce my standard of living if I didn’t save’, they will save more.”
Trenner believes that, despite pensions simplification, pensions remain too complex. He says that anyone without access to a pensions adviser may need a qualification in pensions to stand any chance of realising their hopes for retirement. He said: “I’ve been a senior examiner for pensions advisers for some years, but I think that, with the onset of supposed pension simplification, we’re almost reaching the point where what we really need is an exam for the public to help them cope with the complexity of pensions legislation.”
He added: “Far from simplifying matters, pensions simplification will make pensions more complex. And that means that clients will be increasingly dependent on the advice they receive from specialists.”
This article was published in the Sunday Herald on 21 August 2005. Read it on Herald Scotland