Time called on the Man from the Pru
Sunday 11 April 1999
A review, at a meeting last Tuesday, was prompted by John Elbourne, chief executive of Prudential Retail Financial Services, according to insiders.
Mr Elbourne is worried that the commission structure required to motivate the sale of small-scale personal pensions might alienate customers, insiders said.
Another reason for the review is that the sale of personal pensions by staff visiting customers' homes is difficult for the company to monitor.
Prudential has been caught up in the pensions mis-selling scandal that resulted from salesmen putting inappropriate pressure on customers of modest income to transfer out of state pensions into private pensions.
Initially, the Pru resisted government efforts to hold insurers responsible. After agreeing to co-operate, it set aside pounds 1.lbn to cover potential liabilities. Last year, it increased that provision by pounds 84m, according to its annual report last week.
"The days when the man from the Pru comes round, collects a penny a week for your pension, and puts a ha'penny of that in his pocket are gone," said a senior industry executive. "New Labour's plan to make financial services transparent calls into question the economics of what the Pru has been doing on the personal pensions front for 150 years."
The Government's pension reforms, due to be introduced in 2001, will revolutionise the UK pensions industry. All workplaces without a pension scheme will have to offer a "stakeholder" policy to employees. These pensions will be aimed at middle earners and will be transparent and totally flexible. Charges are likely to be capped at 1 per cent a year.
The Prudential's direct sales arm is likely to suffer particularly badly under the changes, because it has an older, downmarket customer base. The Pru sells pensions to more up-market customers through Scottish Amicable, which sells policies only through independent financial advisers (IFAs).
The Pru's new banking opertion, egg, is aimed at the young and affluent and is sold by phone and over the internet. A spokeswoman denied it would be selling pensions in future, but the brand is expected to expand its range of banking and investment services.
Kevin Russell, the Pru's senior press officer, denied the company had any plans to drop the sale of personal pensions.
The Pru has made it clear, he said, that in the event of the implementation of government reforms on personal pensions, no one taking out a pension from the company from 1 January will lose out. He further denied the company had any plans to trim its direct sales force.
The Tuesday meeting of senior Pru executives reviewed millennium bug issues as well as the company's methods for selling personal pensions, according to an insider who saw the agenda.
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