Don't fall for the hard sell

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WHEN actuaries uncover something "disturbing", you know things are really bad. The rest of us would use much stronger language to describe hard evidence of money-grabbing financial sales practices.

The evidence is within the Fourth Survey of the Persistency of Life and Pensions Policies published by the Personal Investment Authority last week. It reports on how many people persist with paying into their newly- issued pension plans, endowments and other insurance schemes. And the actuaries conclude: "The overall level of persistency remains disturbingly low, particularly for pensions business and in the company representative sector." Company representatives is the fancy name for sales people who work for one firm.

The PIA found that three out of every 10 regular premium policies lapse within four years. The figures were worst for personal pensions: more than four out of 10 policies sold by company sales people are no longer active four years later.

As the PIA actuaries put it: "The charging structure of most contracts means that ceasing to pay premiums early often results in a loss to the investor. If investors buy policies on the basis of good advice, therefore, they would not normally be expected to cancel premiums to their policies unless forced to do so by unexpected changes in their personal circumstances."

So unless there have been unforeseen financial disasters in a suspiciously large number of households, these high drop-out levels suggest some hard selling by people who take commission and hit sales targets - consequences be damned.

Barely half the pensions sold in 1993 are still in force at companies, including Abbey Life, Albany Life, Barclays Life, Black Horse Life (Lloyds), Legal & General, Lincoln, Royal & SunAlliance and TSB Life and Pensions. Britannic Assurance, Reliance Mutual and Old Mutual have under half of their 1993 pension sales still active.

Independent financial advisers fared better across the board, probably because many want to build a long-term relationship with customers. But the figures still aren't good enough: three out of 10 personal pensions sold by IFAs have lapsed within four years.

There is still a long way to go before we can be sure we are being sold the right sort of products, for the right reasons. Strict regulation means these life companies operate within the rules, but that is no help for customers who don't understand what they are buying and the extent of the commitment.

Savvy investors don't buy old-fashioned, expensive life company contracts; there are much better deals elsewhere. Which means sales people have to work that much harder to flog their wares to the financially ignorant. Don't fall for it.