It pays to be persistent

At an industry do the other night, I bumped into a colleague from another newspaper. "Have you seen the latest figures on personal pension persistency rates?" I asked eagerly. His eyes glazed over. Before yours do too, let me explain why it is an important issue.

Persistency, usually given as a percentage figure, is the term used to describe the number of people who stick with a particular policy they have bought year after year. The more policy-holders who continue paying premiums into their pensions, the higher the persistency rate.

Generally, higher persistency rates are seen as good for the insurance industry. They imply that sales forces have not tried to stuff products down the throats of punters who then let them lapse within a short time.

For the first time last week, the Personal Investment Authority, the financial watchdog, released figures showing persistency rates over three years to 1996. They are frightening: one-third of people who are sold regular-premium pension policies by a salesman let them lapse within 36 months. It seems reasonable to assume that this rises to half after five years.

What does that mean, though? For the answer to that question you need to go to Money Management, a specialist magazine. Its surveys show that up to one-third of policies into which pounds 200 a month is paid for five years will not be worth the full amount invested, even assuming 9 per cent growth for each of those five years. That is because charges imposed on personal pensions are typically levied up-front.

What the PIA's figures demonstrate, therefore, is that millions of people with personal pensions may end up with far less than they expected because they let their policies lapse early - almost always for good reason, by the way.

Forget the pensions mis-selling scandal. This one is far more dangerous to far more people, all the more so because it is perfectly legit and its effect will only be felt in 10 or 20 years.

Equally, this one won't go away. If anything, the issue will grow in importance when former policy-holders discover how they were ripped off.

If insurance companies want to play their part in the Government's "stakeholder pension" debate, they must immediately cut the cost of charges they make on existing policies or risk riots a decade down the line.

This week, The Independent's personal finance section was voted the best of all national newspapers in the prestigious Bradford & Bingley awards.

For my sins, I was voted Personal Finance Journalist of the Year.

This section is very much like its readers: cantankerous, demanding, questioning, querulous, inquisitive, jokey, reprimanding and, hopefully, challenging and rewarding too. With your support I aim to keep it that way.