Pensions perfect storm batters life company shares

Ashley Wassall

Who would be a life company right now?

The Telegraph’s revelations that the Financial Conduct Authority is set to launch one of the largest investigations in recent memory into some 30m sales of pensions, endowments, investment bonds and life insurance policies since the 1970s has sent renewed shock waves through markets.

As at 1.30pm this afternoon closed life consolidator Phoenix Group and Resolution, owner of Friends Life, were reeling from a fresh sell-off that left them down 20 per cent and 15 per cent down respectively for the day, wiping a collective £938m in value from the shares.

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Elsewhere, Aviva and Legal and General were down 8 per cent and Standard Life and Prudential were down 4 per cent. St James’s Place was also down 3 per cent.

FCA director of supervision Clive Adamson told the paper the regulator is investigating the level of profits made by insurers from funds closed to new business.

Many policies also include a significant exit fee which can cut a policy’s value in half if the saver tries to switch to another provider. These fees could be banned by the FCA if it decides that would be an effective way to ensure better treatment for savers, the paper claimed.

Full details of the probe are set to be announced in the regulator’s annual report, due to be published on Monday.

This is the second time in 10 days that listed life companies have taken a battering following last week’s Budget announcement, which left the sector down £4bn in a single day as predictions abounded of a 90 per cent drop in single annuity sales.

The latest turmoil also followed hot on the heels of the announcement by the government yesterday (27 March) that it is going ahead with a plan to cap charges for providers of auto-enrolment pensions at 0.75 per cent.

The cap, set at the lowest of the three options outlined in the consultation, will “transfer” £200m in profits for life offices “to the pockets of savers”, pensions minister Steve Webb said.

Crucially, while the charge cap does not exclude contribution charges such as those levied by National Employment Savings Trust, the calculations used in the consultation response place the government’s default scheme provider well inside the maximum threshold.

Worryingly for providers, Mr Webb added that the government will revisit the cap in 2017 and that it sees 0.75 per cent as “merely a starting point”.

FCA response

After a first draft of this blog was published, the FCA released a statement on the “long-standing insurance policies” review.

It clarified that it “will be reviewing a representative sample of firms” and is “not planning to individually review 30m” policies - and also that it is not intending “to look at removing exit fees from those policies providing they were compliant at the time”.