Insurers warned on commission in corporate pension market

by Gill Montia

Story link: Insurers warned on commission in corporate pension market

Some insurers are eroding their profits by competing for a larger slice of the UK corporate pensions market, The Guardian has reported.

According to the newspaper, industry analyst Nick Cazalet is warning that several major insurers are competing fiercely for intermediary-arranged corporate pensions, despite evidence that much of the business will prove to be loss-making.

Mr Cazalet’s argument is based on the length of time group personal pension (GPP) plan customers need keep up payments: where high commission is paid, he believes the timescale is at least 15 years for a plan to be profitable.

However, the average GPP plan lasts only four years before being re-sold by a commission-based adviser to a rival provider, The Guardian reports.

This view is supported by analyst, Bernstein, which recently highlighted the perils for the UK insurance market of relying on sales by financial advisers.

As part of the Retail Distribution Review, the Financial Services Authority is proposing to introduce “consultancy charging” in the corporate pensions market to take effect at the end of 2012, when commission-based sales for GPPs will be banned.