A stable, well-functioning financial market for allA stable, well-functioning financial market for allThe right of transfer for savers in pension insurance policies - survey and proposals
FI is positive towards an extended right of transfer for pension insurance policies. It proposes that the government reconsider the issue of an obligatory right of transfer for policies entered into prior to 2006. The right of transfer should cover both personal pension insurance policies and occupational pension insurance polices. FI believes that the problems in introducing the right of transfer for older policies can be resolved in the formulation of the terms and conditions of the right of transfer.
According to the survey carried out by FI on the ability of customers to transfer their savings in pension insurance policies, an estimated third of the outstanding pension capital in life insurance companies is covered by either an obligatory or voluntary right of transfer. Of defined-contribution pension saving, it is estimated that just under a half of that pension capital is covered by a right of transfer.
FI sees the limited right to transfer savings in pension insurance policies between life insurance companies at the moment as constituting a problem for consumer protection
and competition in the insurance market. The problem is that clients cannot leave a company with which they are dissatisfied or want to leave for any other reason, and also that there is no disciplinary effect on company management of losing customers.
From the consumer protection standpoint, the need for a right of transfer is greatest in pension insurance policies where the customer was initially able to choose the insurance
company. There is a need for a right of transfer for other pension insurance policies, although not as great.
In order to resolve the problems which are often used as arguments against the introduction
of a retroactive right of transfer, it is important that the terms and conditions for the right of transfer be formulated carefully. An important principle in the formulation of these terms and conditions is that those customers who do not wish to transfer their pension savings are not negatively affected. This is because the insurance was sold on the premise that it was not transferable and the company's customers may have believed that the company would not allow the possibility of transferring policies for customers who wanted to in the future. At the same time the right of transfer must be formulated in such a way that it is not unduly expensive for those customers who wish to exercise the right of transfer.
In its report FI has drawn up a model which balances the interests of the policyholders who want to transfer and those who want to stay. The aim of this model is to show that it is possible to formulate a right of transfer which can make this balance successfully. FI believes that the balance can be achieved by making the amount that the customer should be able to transfer correspond to the expected value of the payments to which the insurance policy gives entitlement, but that in certain cases it should be possible to adjust this in order to offset negative effects for remaining customers, as well as being reduced by the company's administrative costs for the transfer.
Introducing a right of transfer for agreements entered into prior to 2006 would mean amending agreements already entered into retroactively. FI believes that there is a strong enough argument to motivate such a change. Ultimately it is up to the government and parliament to decide on this issue; however, FI believes that it should be taken up for reconsideration.
Authors: Tomas Flodén and Björn Palmgren
