IndustryNews
20 October 2008 www.the-actuary.org.uk
approximately $1tn in 2007.
While there is no suggestion that the
PBC would be interested in taking over
Prudential, sources close to the situation
are reported as saying that stakes in other
insurers such as Legal & General and Old
Mutual have also been acquired.
unsurprising by observers, as Prudential
has built a successful business in the
Chinese market and has emerged relatively
unscathed from the credit crunch.
The move is seen as part of a broader
strategy by the PBC to diversify its vast
foreign exchange reserves, which reached
People's Bank of China (PBC), the Chinese
central bank, is reported to have built up
a stake in the UK-based insurer Prudential.
The stake, believed to be just under 1%,
places the PBC within Prudential's top 25
institutional investors.
PBC's interest in Prudential is viewed as
The Financial Services Authority (FSA) has
fined Liverpool Victoria Banking Services
(LVBS) �840 000 for serious failings in the
sale of single premium Payment Protection
Insurance (PPI). The penalty was imposed
for failings in relation to PPI offered to
customers who telephoned LVBS seeking
unsecured personal loans between 14
January 2005 and 8 August 2007.
When customers rang LVBS asking for
quotes, the cost of PPI cover was added in
without customers requesting it. According
to the FSA, when customers were alerted
to the charge, they were pressurised into
accepting the cover.
FSA director of enforcement Margaret
Cole commented: "The LVBS sales
process was flawed in its design. The firm
has stopped all sales of PPI and is now
proposing a comprehensive programme
to contact its customers and pay them
compensation where appropriate. The
FSA expects firms to treat customers fairly,
particularly when failings have been
identified. This proposal for remedial
action sets an example for other firms
to follow.
"In addition, LVBS qualified for a 30%
reduction in penalty by settling at an early
stage of the FSA's investigation. Were it not
for this discount, the FSA would have sought
to impose a financial penalty of �1.2m."
The FSA has previously fined seven firms
over poor PPI selling practices.
The Association of Consulting Actuaries
(ACA) has released the first report on
pension trends in small firms. Firms with
less than 250 employees employ 59% of
the working population. The ACA forecasts
that such businesses are key targets for
the Government's new personal accounts
(PA) scheme.
The scheme is aimed at extending private
pension coverage in the UK. The ultimate
goal is that, from 2012, all employees
will be enrolled into either an exempt
workplace scheme or the new PA scheme or
choose to opt out.
To secure exemption from the PA scheme,
employers' offerings must equal or exceed a
minimum scheme standard of 3% employer
contributions, 4% employee contributions
and 1% tax relief.
The report's key findings were:
n The majority of existing smaller
schemes would fail the personal
accounts exemption test -- 55% of
the 394 firms surveyed said that their
current pension schemes would fail
in this respect. More than 60% said
they were currently paying lower
contributions than the minimum levels
proposed for personal accounts.
n Firms are concerned that their
schemes will experience sharp falls in
membership as individuals opt out and
into the PA scheme.
n Where a workplace scheme is offered
by firms employing less than 51 staff,
the average combined employer and
employee contributions are below
5% of earnings. Across all firms,
contributions were well below the 8%
minimum standard highlighted by the
PA scheme.
n One third of firms expect to reduce
their pension scheme benefits
(to mitigate the cost of higher
membership) or to close their scheme
in favour of personal accounts.
n Of the firms surveyed that have offered
defined benefit schemes in the past,
90% say these schemes are now closed
to new entrants and approximately
50% are closed to future accruals.
ACA chairman Keith Barton commented,
"Our latest survey in the sector points
to the huge challenges there are in
achieving wider pension coverage in
smaller firms. Yes, it is very clear that
there is a huge under-pensioning of
millions of employees, but our survey
suggests the benchmark set by the
government may weigh very heavily
on smaller firms, particularly if
economic conditions are not good at
the time auto-enrolment and personal
accounts are launched.
Of particular concern is firms'
expectation as to how many of their
current pension schemes will fall short of
exemption from personal accounts, and
the scheme reviews and levelling-down
that might therefore occur, alongside
high opt-out levels by individuals. While
a phased introduction of the reforms will
help, we wonder whether the minimum
benchmark for smaller firms has been
set too high. The viability of running a
low-charge scheme across more than one
million employers, with minimal red tape,
also remains to be resolved."
The ACA's report is available to view at
www.aca.org.uk on the `Latest Publications'
and `Research' pages.
ACA publishes 2008 smaller firms pension survey report
Liverpool Victoria fined �840 000 for mis-selling PPI
China's central bank builds stake in UK insurance sector
Cole: Sales process was flawed in its design

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