Pension giants fall out over quote manipulation claims

Are you being misled over your pension? Sun Life fears you might be.

PERSONAL PENSION giants like Standard Life are manipulating their quotes to produce contracts which look good on paper, but give many customers a poor deal.

That's the charge from Axa Sun Life, which accuses rivals of artificially boosting the transfer values they offer. These show the amount you would get if you stopped your premiums early and took the money in your pension to another company. But Axa Sun Life research shows that only about 15 per cent of people who stop their premiums early take this route. The other 85 per cent leave the fund where it is, turning their pension into what insurers call a paid-up policy (PUP).

Concentrating on transfer values alone therefore lets some companies sell pensions by pointing to high transfer values, knowing very few customers will ever take them up in practice. Companies named by Axa Sun Life as offenders include Standard Life, Scottish Amicable, Clerical Medical and Norwich Union.

AXA Sun Life business development manager (pensions) Steve Burgess says: "Some companies are cynically manipulating their figures so they look good on a standard quote."

But Standard Life pensions marketing manager Andrew Black denies the charge. He says: "In general terms, contracts offering good transfer values also offer good PUP maturity values. They're not identical, but there's a strong link."

The effect of switching from transfer values to PUP maturity values can be dramatic, however. If you take the example of a 25-year pension, with premiums of pounds 200 a month, and look at which one produces the best transfer value after one year, Clerical Medical tops a list of 12 leading companies. Look instead at which company produces the best PUP maturity value, and Clerical Medical drops to the very bottom of the table (see left).

Nigel Chambers, deputy managing director at IFAs Johnstone Douglas, warns that customers can have either high early transfer values or high maturity values, but not both.

He says: "Insurers can collect their charges early and have - as Sun Life has - a higher maturity value. Or they do as Standard Life does and take a level charge all the way through, which gives you lower maturity values. You can't do both."

Nearly 30 per cent of people with a regular premium personal pension stop their payments in the first four years. Whichever option you choose when stopping, you cannot take the pension's benefits until it matures at retirement age.

The regulators demand that pension companies quote both transfer value payouts and full maturity values. These appear on the key features documents which all customers receive. PUP maturity values can be included, but there is no obligation.

AXA Sun Life plans to lobby for PUP maturity values also to be made compulsory. Burgess says: "The only figures shown on the quote are the transfer value and the full maturity value. What they don't show are the PUP maturity values."

Once again, Black does not agree. He claims customers would simply be confused if faced with three different figures: "Early transfer values and full maturity values illustrate the bulk of the story. They bring out what I think are the key messages. It's a question of balance, and of choosing the right amount of information."

Full maturity values assume you will continue premiums throughout the pension's term. PUP maturity values show what happens if you stop after a given number of years.

Chambers thinks the Government's plans to bring in new low-cost stakeholder pensions could lead to high early transfer values backfiring on companies offering them. AXA Sun Life has its own axe to grind in this particular row. The company's Lifestyle range of personal pensions, launched on 14 January, is built round providing high PUP maturity values.