Far too many people are surrendering their life and pension policies prematurely - further evidence of mis-selling

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Indy Lifestyle Online
WHAT ON earth is going in with life insurers? Two events this week lead me to ask this question.

The first is the publication of a regular survey by the Personal Investment Authority (PIA), the financial watchdog, of so-called "persistency rates". Basically, these measure the proportion of policyholders who lapse their life insurance, endowment and personal pension policies within a given space of time.

The figures are shocking. What they show is that on average, only 60 per cent of regular premium pensions sold by insurance salespeople are kept going for more than four years.

For some companies the figures are even less. Black Horse Life, owned by Lloyds Bank, manages just 55 per cent. Cornhill has a persistency rate of 53 per cent. Legal & General's salespeople barely manage to get 56 per cent of their policies to stick.

The position with endowments is hardly better. Barely three quarters of people keep their endowments going, on average, for more than four years. And this conceals far worse figures: a third of Abbey Life's policies, a company also owned by Lloyds, are lapsed. Lincoln is even worse, at 59.4 per cent.

If people surrender their policies after so short a time, it means mis- selling is still rife within the industry. Moreover, in many cases the amount policyholders will get back from their investment after four years will be negligible. This is because most of these policies are deliberately structured so that all the charges are up-front.

The third issue concerns how advice is given. These figures show clearly that salespeople give worse advice than independent financial advisers (IFAs), though the difference is not staggering. The comparable average lapse rate for regular premium pension policies among insurers who deal with IFAs is 71.5 per cent and 83.8 per cent for endowments.

What makes these facts even worse is the announcement this week that the insurer's trade body, the ABI, has agreed with watchdogs that it will start the process of compensating people who were mis-sold pension top- up policies, knows as FSAVCs.

Except that cases to be reviewed will be confined solely to two groups: those whose in-house scheme, had they joined it, would have included a matching employer's contribution; and sales where payment into an FSAVC was in danger of breaching the total Inland Revenue limit of 15 per cent of annual salary.

This is a bit like the ABI saying: "We will compensate anyone who signed an FSAVC proposal form with their left hand at 3.30pm on a Thursday."

Again, one must ask where the regulators are while this is going on. If reports this week that 30 of them are to receive compensation of up to pounds 4,500 each for the loss of car-parking spaces at work are accurate, they're probably still driving around aimlessly, looking for somewhere to dump their cars.

PS - To the scores of readers who rang or wrote about delays in receiving details about Egg instant access accounts, I have only one word to say: patience. I finally received my application form this week - 11 days after phoning for it. Whoops, there's a further wait of up to 28 days for my application form to be processed. Perhaps they should have called it the Ostrich account.