Press review: Don't bet the house on a pensions boom

Press review: Don't bet the house on a pensions boom

Are Britons starting to move their money out of property and into pensions and savings? Britain's largest life assurer and pensions provider thinks so. On Tuesday, the owner of Norwich Union, Aviva, said the end of the housing boom had helped its life and pensions sales increase last year by 11% to £6.5bn, or £1.1bn on the APE measure. APE is used by insurers to shows the long-term value of new business.

Also this week, the Bank of England predicted house prices could fall further, and Aviva's main rivals posted positive pension sales figures. Legal & General, St James's Place Capital and Prudential reported rises last year of 14%, 19% and 21% respectively. These increases were sure signs of a recovery in an industry damaged by lack of consumer confidence in long-term savings in the wake of previous stock market falls, reckoned Martin Flanagan in the Scotsman

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But the bunting would have to stay in the cupboard, he said, as the growth had come after a "relatively flat previous performance" and firms such as Aviva have been hit in the "short term by cutting commission payments to independent financial advisers. The IFAs have responded by showing less enthusiasm for selling lower-margin products like stakeholder pensions."

Martin Dickson, in the Financial Times's Lombard column, was more upbeat about Aviva's figures. The rise in its share price from 620p to 639p by the end of Tuesday was not solely the result of enthusiasm for last year's results, he said. "The group's highlighting further UK life and pensions growth this year and stronger growth beyond, is especially striking coming from a company with some record of caution in what it says."

Others compared Aviva's results to those announced yesterday by Prudential. "Whereas ... Aviva appeared to have been loading on commission to encourage sales of its with-profits bonds," said Anthony Hilton, in the London Evening Standard, "Prudential's margins suggest it has not played fast and loose to bring in the volume."

Prudential's growth had not come at the expense of its "big fish" competitors, he continued, but at the expense of the many small firms being "squeezed into specialist niches or out of the retail market altogether".

But the growth in pensions sales did not necessarily reflect public confidence in the industry. Consumer anxiety following the pensions mis-selling scandal of the 90s had not been placated by the actions of the industry regulator, reckoned the Daily Mail's Ruth Sutherland. The Financial Services Authority failed to "avert scandals such as Equitable Life and its new gung-ho approach took a blow last week when a tribunal ruled that the FSA's methods were flawed in a showdown with Legal & General".

There would be growth opportunities this year and next, she added. These would come through pensions simplification and depolarisation: "the ugly industry word for relaxing of the current rules governing the way financial advise it given. But this does not amount to a sea change that will transform people's saving habits - or insurers' profits."

Uncertainty about the strength of the pensions industry would also remain because of conflicting messages about house prices, said Michael Harrison in the Independent. On Monday the government announced a cut-price home ownership scheme. "Tony Blair thinks property prices will continue to rise and so it is only fair that first-time buyers on low incomes should be helped on to the housing ladder before it is yanked away completely," he wrote. "Kate Barker, on the other hand, thinks that prices are more likely to fall and, as one of the Bank of England's rate-setters, advises would-be buyers to act accordingly."

Patience Wheatcroft, in the Times, agreed with Ms Barker's "sanguine analysis" in a speech at the Institute of Economic Affairs: the repercussions of falling house prices would be limited. The slide in the dollar represented a greater threat, said Wheatcroft. "But a more immediate risk to the nation's growth that [Ms Barker] tactfully avoided mentioning was the tax rises which, once the election is over, seem inevitable."

Guardian Unlimited © Guardian Newspapers Limited 2005