Pension freedoms could resurrect with profits: AKG

twitter-iconfacebook-iconlinkedin-iconmail-iconprint-icon
Search supported by
Pension freedoms could resurrect with profits: AKG

With profits providers will benefit from pension freedoms but need to move with the times and embrace transparency, according to AKG.

Advisers should be prepared for an increase in enquiries from with profits policyholders trying to track down old policies, according to financial analytics firm AKG’s annual analysis of the £315bn with profits sector.

The report shows sales of single premium products increased by 8.4 per cent to £4.1bn in 2014, with Prudential dominating sales.

Regular premium new business dropped 64 per cent to £184m in the same period.

Matt Ward, head of communications at AKG, said the pension freedoms have clearly piqued the interest of customers approaching retirement, leading to a surge of enquiries about the product to UK life offices.

He said clients may wish to track down old policies, which are potentially impacted by firm’s involved in any merger and acquisiton activity, to assess the performance and charging structure of their with profits fund and to gauge whether the policy can accommodate pension flexibility.

Mr Ward said: “Any guarantees provided by a with profits policy will need to be given due consideration.”

Merger activity in the past year in the sector has included Aviva’s acquisition of Friends Life, Druids Sheffield Friendly with Oddfellows, and Marine & General Mutual with Scottish Friendly.

Mr Ward said: “If with profits style solutions can move with the times and present themselves in a transparent manner there is an opportunity for them to attract renewed customer interest.

“Indeed with profits may need to be reinvented or rebranded in some way in order to distance the terminology from its perceived toxicity.”

With profits may need to be reinvented or rebranded in some way in order to distance the terminology from its perceived toxicity. Matt Ward

AKG found the top with profits fund for 10-year £50 a month endowments paid £8,672 which is more than £3,000 higher than the worst.

The best 25-year £50 a month endowment paid £50,637, which is £31,000 more than the worst.

Colin Rodger, managing director of Glasgow-based Alexander Sloan Financial Planning, said he had not noticed any change in the number of enquiries about with profit funds since the pension freedoms.

He said: “There is very little new with profits business, and it is not that the policies we come across are not transparent, it is that most legacy policies have large transfer penalties built into them.

“You often find there is not a lot you can really do with some of these old policies, so you have to let them run to their maturity date or you can suffer a large penalty on transfer.”

Mr Rodger said, while the principle of the with profits sector was to smooth the ups and the downs, it didn’t work during a severe economic downturn.

He said: “If the funds couldn’t protect you against sharp falls in the market, then there is no point in holding on to some of the growth in the good times, because it wasn’t doing the job.”

katherine.denham@ft.com