Contract-based DC pensions hit by falling sales

Group pensions sales have fallen sharply as the recession, unemployment, pay freezes and legislative changes have impacted on the market.

Aviva saw its group pension business fall by 55% to £462m from more than £1bn in 2008. Similarly, Royal London saw the present value of new business premiums on Scottish Life group pensions fall by 19% to £342m in 2009, compared to £422m in 2008. Royal London put its drop performance down to “unsustainable commission” rates being paid by its competitors on group pensions business.

Meanwhile, Friends Provident’s group pensions sales fell 26% to £310m during 2009, down from £423m the previous year. It also reported a fall in new business sales of 13% over 2009 to £873m compared with more than £1bn the previous year.

However, Standard Life appeared to buck the downward trend and reported life and pensions net inflows were more than three-times higher at £1.3bn in 2009, compared £0.4bn in the last quarter of 2008.The firm’s success was largely due to an increase in sales in its group self-invested personal pension (Sipp).

Helen Dowsey, a principal at Aon Consulting, said the drop in sales for group pensions was partly because pension providers were not benefiting from as many new members joining existing schemes. “Most providers receive some form of remuneration directly into their pockets by new members joining existing schemes,” she said. “It might be because of the recession that employers have not been recruiting, have not been giving salary increases and very often have been laying people off. Clearly if [the providers] have not got the cash flow coming through the door that is going to hit them directly.”

Many employers might also be suffering from a “planning blight”, with many reluctant to introduce new pension arrangements or change their existing schemes before this becomes necessary under changes in legislation. These include income tax hikes and changes in pension tax relief for higher earners, as well as the workplace pensions reforms due to come into effect from 2012.

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