View from City Road: Insurers must shoulder the burden

The Association of British Insurers' recent deal with the Department of Social Security may settle the dispute over personal pension rebates, but some life office members are far from happy. Allied Dunbar and the Canadian-owned Laurentian are unwilling to cough up hundreds of thousands of pounds because of the DSS's inability to look after its paperwork.

The huge sales of personal pensions initially overwhelmed many life offices and the DSS. Five years after their introduction, and despite a great deal of work, some 32,000 policyholders still have not received their rebate of National Insurance contributions from the DSS.

The DSS has agreed to pay up the pounds 67m of rebates but wants the life insurers to shoulder the cost, perhaps pounds 20m, of making up the lost investment gains of the past two years.

One reason is that the life offices' administration of their personal pensions business was scarcely faultless. Even if the insurers are right in their suspicion that more of the blame lies with the DSS than with themselves, this would, for most of the 32,000 cases, be all but impossible to demonstrate in the courts.

Some suggest that those most aggrieved at the ABI deal have more than their share of problem cases, reflecting their own past deficiencies. This seems more likely to be true of Laurentian (2,400 cases) than of Allied Dunbar (1,000).

Unit-linked companies, which must make up the deficits from shareholders' funds, are more aggrieved than traditional companies, which are able to lose the additional costs in the mists of with-profits accounting.

Allied Dunbar and Laurentian are looking for support to press for a better deal, but their options seem limited. An approach to the Parliamentary Ombudsman would only extend a dispute that has already dragged on too long. It may be unfair, but the ABI deal may be the best available.