Collapse of confidence blamed for pension sales slump

Sales of pensions and life insurance products in Britain slumped last year, according to figures released yesterday by the Association of British Insurers.

The drop in UK life and pensions premium income, down to pounds 43bn from pounds 47.5bn in 1993, was the first since records began in the 1960s. It came as payments to policyholders continued to rise, reaching pounds 31bn last year, narrowing the differential between sales and payouts.

Chris Hitchings, insurance analyst at UBS, the Swiss banking group, said: "What we may see is a spiral where expenses are such that it is hard to keep a product competitive. In turn, this makes it more difficult to sell, making it less competitive."

But Mr Hitchings went on to predict that the industry's problems would gradually be overcome."What we should see is sales pick up in the third and fourth quarters of this year and in 1996," he said.

Allan Bridgewater, chairman of the ABI, the industry's trade body, yesterday blamed the sales fall on the collapse in public confidence in the wake of the pensions transfer scandal. "We have been and will continue to work hard to restore confidence as quickly as we can, including through enhanced training of our staff and close adherence to regulatory requirements."

The emphasis on greater disclosure of charges and expenses, introduced in January, had also affected premium income.

Mr Bridgwater said among other reasons for poor sales was the disparity in the tax treatment of long-term savings and other tax-free investments, such as personal equity plans, plus increased deposits in building society accounts.

The Building Societies Association yesterday announced that net receipts in May were, at pounds 860m, the highest for more than 18 months.

Sales of unit trust PEPs in 1994 reached a record high of pounds 4bn. Since 1991, unit trust PEP sales have risen six-fold.

Despite gloom in the life sector, worldwide general insurance premiums rose 3 per cent to pounds 34.5bn. In the UK, motor insurance profits reached pounds 295m, a fourfold increase on the previous year, while non-motor business showed profits of pounds 916m.

"Insurance companies have worked hard to achieve reduced claims. Many policyholders have experienced stable or reduced premiums and insurance companies have, in turn, benefited from increased profits," Mr Bridgwater said.

The ABI is launching a new Crime and Fraud Prevention Bureau, aimed at reducing multiple and inflated claims costing the industry pounds 600m a year, but admits the effect on premiums is likely to be marginal.