Sun Life sees new business leap by 35%

AXA SUN LIFE, one of the UK's biggest life insurers, yesterday posted a 35 per cent jump in new business as savers fled from low-interest savings accounts to investment policies offering a higher income.

The company, a division of Sun Life & Provincial Holdings, said sales of lump sum bonds had been exceptional, leaping by 109 per cent to pounds 435.5m. Lump sums overall jumped 56 per cent to pounds 904.7m.

Executives said the jump in new business reflected concern among savers about low interest rates, which now pay little over 5 per cent on a typical 90-day account.

Savers needing income had begun shifting money into share-based investments without wanting to take big risks with their capital. That had fuelled demand for bonds and "cautious" funds offered by AXA Sun Life, executives said.

However, the company voiced serious concerns about the Government's plans for stakeholder pensions, the new type of pension meant to encourage more people to save for retirement.

Les Owen, chief executive of AXA Sun Life, said the proposals may fail in their objective because they focus solely on low charges, failing to take account of the cost of selling the products.

"At the end of the day someone needs to spend time persuading individuals that they have a need to make more pension provision for themselves. If the cost of that is not built in to the pension, then there won't be any significant increase [in the number saving]."

As with other insurers, AXA Sun Life has also been taken aback by an intervention by the Financial Services Authority, the City's senior regulator.

The FSA has warned advisers against selling expensive pensions to customers who may later want to switch to a new stakeholder plan. The concern is that they may get poor value when they switch, because charges will have eaten into early contributions.

AXA Sun Life fears this will create a "pensions planning blight". Afraid of being accused in future of mis-selling, financial advisers would be deterred from selling the products.

"There is a danger that people won't do anything now to save even when it's in their interests - just because the charges might be lower in two years' time," Mr Owen said.

Sun Life & Provincial shares closed up 27p at 543.25p.