Central Bank probes pension sales

Companies and brokers must disclose records amid fears consumers paid too much

Jerry Moriarty: 'rip-off' fear

Charlie Weston Personal Finance Editor

A MASSIVE probe has been launched by the Central Bank over fears that thousands of customers are being forced to pay too much for pensions.

Insurance companies and brokers have been asked for three years of records as regulators probe patterns which will show if consumers have been mis-sold financial products purely to make commissions and artificially boost sales.

There are fears that the probe could uncover the next mis-selling scandal.

Regulators fear thousands of people are being "churned" – the practice of encouraging consumers to cash in, or stop paying into, an existing policy before it matures and take out a new policy instead.

A recent report from the Department of Social Protection found that fees and charges can make up between a third and a fifth of the value of some forms of pension.

A spokesman for the Central Bank said: "A themed inspection has recently commenced into the sales process of pension policies by retail intermediaries, in order to assess compliance with the Consumer Protection Code. Findings will be published in early 2014."

The Irish Independent has learned that all the main life insurance and pension provider firms have been asked to provide detailed information on their sales of pensions.

The pension companies have been asked for:

* The total number of pension policies sold in 2010, 2011 and last year.

* The number of pension plans that are still active and the number of pensions that are lapsed.

* The top 10 brokers who have sold the most pension policies in each of the three years.

Jerry Moriarty of the Irish Association of Pensions Funds, which represents those who pay into pensions, said churning was a huge problem.

"The level of commissions are huge. Unless people are getting serious value then we are into rip-off territory," he said.

It was particularly an issue for the 325,000 self-employed people, he said.

"Coming to the end of the tax year, self-employed people are told they can cut their tax bill by signing up for a new pension. Often there is no regard for the fact that they have an existing pension policy," Mr Moriarty said.


Financial adviser David Quinn of Investwise in Dublin said it would not be unusual for someone selling a pension to get a quarter of the first year's monthly premiums, and then a percentage of the value of the fund every year.

He added that the transfer value commission was driving brokers to switch clients around between providers.

"This is typically 5pc on any new funds transferred from one provider to another. This can be tens of thousands for large funds," Mr Quinn said.

The scandal has the potential to be as big as the payment protection insurance (PPI) mis-selling scandal. Up to 70,000 people are set to get refunds worth up to €2,000 each because they were mis-sold the PPI. Around 340,000 people bought the products between 2007-11.

The Central Bank has told AIB, Bank of Ireland, Ulster Bank, Permanent TSB, EBS and American-owned GE Money to review their sales of payment protection since 2007.

Rules put in place by the Central Bank make it clear that consumers should only be sold a pension and other products if it is in their interests.

The Consumer Protection Code makes it clear that the sale of financial products should not be influenced by commission or other earnings.

Senior Central Bank insurance regulator Mark Burke told a conference earlier this year that the fact that so much of the commission to brokers is paid upfront in the first year was encouraging churning.

Mr Burke said people were also switching because premiums have come down dramatically recently. He called for brokers to be rewarded for keeping consumers on their books.

Less commission should be paid upfront, and instead the commission payments should be level across the life of the policy, Mr Burke said.