Outlook: The persistent pension scandal

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In April this year, we published an exclusive analysis of charges levied by Britain's insurance companies on the pensions they sell. We showed that up to a third of people who take out a personal pension end up with less than they paid into it. Yesterday, the Personal Investment Authority, that shambolic organisation that has tried unsuccessfully to pass itself off as a financial regulator, showed that, if anything, we were far too conservative in our estimates.

The PIA has published its annual "persistency" tables, figures which show the number of people who allow their policies to lapse one, two and three years after taking them out. The tables show that within three years of being sold a personal pension by a company salesman, one third of people stop paying into them. In many cases, persistency is even worse. Barclays Life has a lapse rate of 59.6 per cent after three years, Black Horse Life, part of Lloyds Bank, achieves a paltry 62.8 per cent. Guardian, owned by GRE, the composite insurer, scores a miserable 55 per cent.

On the available evidence, it now seems fair to say that within five years, less than half of all policies sold are still kept going.

Despite this, insurers continue to sell products with heavy up-front charges that eat up a large chunk of the contributions paid into them in those early years. Forget the pensions mis-selling scandal, which even the most obtuse insurance salesman now accepts involved poor, possibly illegal financial advice. The deeper and more pervasive scandal is that of a huge mass of people who were duped by the small print in their contracts to pay for something that will deliver few returns, if any, at retirement. This time it's all perfectly legal.

Last week, the Department of Social Security was inundated with submissions from insurance companies all keen to contribute to the Government's review of the pensions system. In every case, the submissions called for "low- cost, flexible" pensions, with no penalties for those stopping and starting them. From an industry which has so flagrantly misled and failed its customers, the hypocrisy is quite breathtaking. But at least even the industry now accepts that something must be done.