The results of the FSA's annual persistency survey for 2007 suggest the industry cannot sustain traditional methods of pricing pension plans, Scottish Life says.
The firm says the survey, published this month, indicates “the persistency for personal pensions continues to fall” with just 42.3% of IFA-advised clients retaining their personal pension after four years, compared to 45.9% in the 2006 survey and more than 70% in the first survey in 1998.
Annual management charge (AMC)-only pricing structures typically require customers to keep their plan for most of its lifetime to generate profit for the provider.
Scottish Life says this means providers can end up facing a significant loss if customers do not maintain regular contributions into their plan.
The firm says lapses in the early years create the greatest losses, especially if the provider has paid the traditional form of initial commission.
John Deane, chief executive of Royal London’s Intermediary Division, says: "We have been emphasising for some time now the importance of writing new business profitably and not just pushing for increased business volumes and market share on any terms.
"However there are still a number of competitor companies who are operating in a way that just makes no sense to us.
"As long as this continues, the market will be distorted. However, with the publication of the latest FSA persistency survey, it seems likely that stock market analysts and institutional shareholders will be putting pressure on these companies to review their strategies and to make the move to sustainable pricing structures."
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