Pension policies abandoned after two years

More than a quarter of people who bought a personal pension directly from a company representative during 1993 had suspended payments two years later, according to new figures published yesterday by the Personal Investment Authority (PIA), the industry regulator.

Barclays Life and Britannic Assurance are among the companies with the highest surrender rates, while Standard Life and Scottish Widows have some of the lowest.

Long-term pension policies are not normally expected to be cancelled early. High surrender rates may indicate the sale of inappropriate policies, often because of poor advice.

The regulator said that while the statistics showed a slight improvement on the previous year, the persistency rates - the proportion of policyholders who kept up payments - were still too low.

"The main conclusion from this survey is that too many investors have terminated their policies early," the PIA said.

The regulator plans to monitor the trends for all companies but will look in particular at some of the weaker performers to see what progress has been made with more recent sales.

The survey analysed returns submitted by life assurance companies and friendly societies on the persistency of their life assurance and pensions business.

It showed that persistency rates for personal pensions were worse than those for endowment or life products and that independent financial advisers (IFAs) have better persistency rates than company representatives.

The PIA first published the survey last year and analysed the persistency rate, after one year, of policies sold in 1993. This new survey covers policies sold in 1994, and gives a second year of data for policies sold in 1993.

The survey shows a persistency rate of 72 per cent after two years for personal pension plans sold in 1993 by company representatives. This means that 28 per cent of investors failed to make the payment due in the 25th month.

The persistency rate over two years improved to 84 per cent when the personal pensions were sold by IFAs.

While these two year rates are high they show that there were fewer lapses in the second year of a policy than in the first year.

After one year the persistency rate of personal pensions sold in 1993 was 84.0 per cent. Policies sold in 1994 by company representatives had a persistency rate of 83.8 per cent.

For IFAs, the equivalent figure was 91.9 per cent after one year for the policies they sold in 1994 compared with 92.3 per cent in 1993.

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