By the time I get to Phoenix

Glen Campbell’s masterpiece is the musing of a man who has left his woman a note on the door – explaining he’s leaving.

Each verse tracks his journey through Phoenix, Albuquerque and beyond and how he imagines she’ll wake up to the reality of being dumped. It’s a beautiful song with a bitter theme.

It puts me in mind of another dispute, between Phoenix and certain pension commentators.

Mike’s quote highlights the seemingly contradictory approach adopted by Phoenix towards exit charges on their extensive back book.

  1. One view of Phoenix is that it is a Zombie that buys life companies pregnant with value that can be milked by shareholders.
  2. Another view is that Phoenix can drive efficiencies from badly run businesses to the mutual advantage of shareholder and policyholder.

Since social media  exclusively subscribes to view one, I will write a blog explaining why view two is commercially more plausible.

What the £68m write down means

All pots smaller than £5,000 that had charges in excess of 3 per cent per year will now be capped at that level with no exit charge applied, or at 1 per cent per year for workplace pensions.

All pots larger than £5,000 where charges exceeded 1.5 per cent per year will now be capped at that level, or at 1 per cent per year for workplace pensions.

These changes apply to 250,000 unit-linked policyholders out of a million, the remainder of whom already have charges below 1.5 per cent.

It also takes the total average annual charge across these million policyholders to 1.1 per cent and covers the Abbey Life book.

A gift horse?

gift horse 2

Let’s not look a gift horse in the mouth – we need to understand the gift and the horse – but this £68m looks like real money to me and money that could and should be taken.

I may be entirely wrong, and will be able to comment further later in the day – as I am meeting people connected with Phoenix to get clarity. But here is my argument.

Why it pays for Phoenix to reduce exit penalties.

That Phoenix’s back book is a mess is in no doubt. This hotch-potch of life companies has recently embraced such unlikely bedfellows as Standard and Abbey Life. Policyholders from these insurers join life books from Royal Sun Alliance, Alba, Britannic, Axa, Scottish Mutual, NPI and Pearl Assurance under the Phoenix Umbrella (you can follow the history here – Phoenix itself goes back to before the French Revolution).

For Phoenix to achieve its stated aims for its customers, Phoenix has to treat its customers fairly. It is directly in the eye of the FCA who are in the middle of a review of “non-workplace pensions” – the £400bn of our money, managed in what the life company call their “legacy”.

Life companies can justly claim that the reason that so much of these books carries what today would be considered inordinate charges, is that it is advised business. By “advised”, life companies mean that a salesman – called an adviser- sold the policy to the policyholder for a commission paid by the life company, which was to be recouped over the life of the policy.

There were two assumptions made at the point of sale

  1. that premiums to the life policies would be maintained over the life of the policy (in retirement plans typically through to 65)
  2. that advice would continue to be offered for the same duration,

In a handful of cases, this is the case. My friend John Mather started his career in 1973 as an Abbey Life “adviser” and is still advising today – at the age of 70). Many of the policies he set up in the 70s were minded by him till maturity. John is the exception that proves the rule

The reality is that only a tiny percentage of the policies that form the Phoenix back book were maintained, most became “paid up” and many could not be restarted. The front-end commissions paid to advisers were paid for from a few contributions and this concentrated their impact. The policies in the back book are now carrying the weight of these charges and – understandably – if they are terminated early, the policy conditions demand that the outstanding “advisory” debt is returned by means of exit penalties.

The assumptions made by the pricing actuaries of the various life companies were wrong. Not only were they wrong, but the actuaries had plenty of evidence that they were wrong. High turnover of sales advisory staff and low persistency of contribution payments was evident from day one. The whole business of life insurance sales over the period leading up to RDR in 2012 (40 years) was founded on these false assumptions!

Life insurance is sold not bought – “advice” is no more than a veneer for “sales” and most of the policies had no more chance of being maintained than a rowing boat crossing the Atlantic.

Phoenix knows this, the FCA knows this and the FCA knows that Phoenix knows this.

It pays Phoenix to offer members an amnesty on exit charges – because it is considerably cheaper than reducing the charges themselves. Phoenix understand “nudge” and “nudge” is on their side.

However, but it sounds like Phoenix has listened to Glen Campbell’s ” By the time I get to the Phoenix” and particularly its desperate last line

“she just didn’t know – I would really go”

You don’t write off £68m from your profits if you aren’t serious about letting go… do you?

Exit penalties and “nudge” – treating customer fairly?

In an interview with New Model Adviser last year, Andy Moss, CEO of Phoenix was asked about exit fees.

In March the Financial Conduct Authority introduced a 1% exit fee cap for the over 55s, how has this affected the Phoenix group?

It has had pretty much no impact. As a result of the exit fees cap we are not seeing a sudden increase in people wanting to exit their policies above what we would have expected anyway. It is interesting because we have always looked at our book and felt the exit fees didn’t have a big impact on people.

Certainly Phoenix’s latest half yearly results bear testament to this, Phoenix is prospering despite putting aside £68m to meet the impact of people taking their money early (without exit penalties).

It would be cynical of me to put only one side of the story, Moss also explained

Of those below age 55 around 85% of our book don’t have exit fees. We have to bear in mind there are different charging mechanisms for life company products, and historically exit fees are there to recoup the initial cost of the policy. They do run off over time and a lot of our policies are now a lot lower.

What we are doing on an ongoing basis is looking at the value for money of our products and exit fees are only part of the picture – we have to bear in mind with a lot of the older products many have guarantees. So it is not quite as straightforward as looking at the charges; it is a combination of both the benefit and the charges.

The reality is that without a lot of help, the consumer is in no position to take any decision at all. A carrot of “value” is dangled – while the old horse is being whipped from behind with lashes of charges. Maybe – if he gets to journey’s end – that carrot will be the horses’s, but will the pain on the way be worth it?

carrot stick horse

This is not a picture that brings to mind “treating customers fairly”.

What is needed.

Phoenix should know all about “nudge theory” and the power of inertia. After all, it’s Peterborough HQ shares premises with NEST!

There are two good outcomes for Phoenix – with regards its back book

  1. Policyholders who stay , stay happily, content in the knowledge that they are being treated fairly and with information to prove it
  2. Disgruntled policyholders are allowed to leave gracefully and do not create the bad headlines that Phoenix are currently getting.

Pension Bee, which has done as much as anyone to highlight the wicked charges meted out to some of the 15% mentioned by Andy Moss, are the first to applaud the £68m provision in the 2018 results to meet the write offs from people taking charges.

But for Pension Bee and me and the Lang Cat and the FCA to be satisfied, we need to see Phoenix nudging policyholders to take the decisions that are best for policyholders, not just for shareholders. That means properly explaining the value for money of staying and leaving and making it easy for those who want to leave – to leave.

Policyholders need to be reminded that the door is open and shown options outside.

The devil and the angel in the Phoenix

I am minded to give Phoenix the benefit of the doubt and to assume that they will not cynically cut exit penalties as a cheap alternative to cutting back-end charges for those who stay.

It has possibly the best IGC in Britain, an IGC that is left to get on with its job independently and which has consistently shown it has teeth.

If Phoenix means what it says, it should be putting the “value for money” information – it claims to be getting on its back book, to the policyholders in a meaningful way. I don’t some actuarial report that nobody can read, but  a plain statement that explains the options “legacy” policyholders have.

To this end, I am off to talk to Phoenix!




This article is purposefully ignoring the running argument over with-profits MLR’s but and will cover this issue separately


About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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5 Responses to By the time I get to Phoenix

  1. Ron Godfrey says:

    Yes. A well made argument.

    Whilst Phoenix might get a bad press about all manner of things, we must remember that they weren’t the architects of their own situation, merely the people who put their head above the parapet and became the custodian of millions of policyholders’ fortunes.

    (And besides, every time I hear the name it makes me think of Wishbone Ash’s first album (1970!))

  2. Mark Meldon says:

    A very fair article, Henry, and rather more balanced than the recent ‘Pension bee’ news release. Like most IFA’s, I regularly come across Phoenix Life policies (pension or otherwise) and, as one would expect, the curate’s egg comes to mind. You have to dig down into the policy T&C’s, consider any loyalty mechanisms, look at fund switches, GAR’s, life cover and waiver (as you recently reminisced about) before advising a transfer. The member can always wait until later if the plan they have is acceptable. Indeed, some are really quite good value for money, in my experience (and, yes, I can get paid for saying so!).

    The story is perhaps a little different with ReAssure with all those bizarre General Portfolio policies. And, whatever happened to all those Merchant Investor’s policies? How many old Allied Dunbar pensions are still on the books? Anyone remember Devonshire Life, or Criterion? It’s very hard to find out.

    It can actually be quite fun making the best of what a client already has rather than always needing to arrange something new.

  3. henry tapper says:

    Thanks for the comment, though I defend Pension Bee’s right to create a fuss – without them – would be having this conversation? The trick is to help the many Phoenix policyholders who don’t have the good luck to come across you guys

    • Mark Meldon says:

      I’ve been making a fuss about this since, oh I don’t know, 1996. Did a slot or two on Moneybox around then. The public just don’t engage, so some kind of unilateral action might be needed (ha!).

  4. DC says:

    Great post Henry.

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