With-profits funds explained Which? Campaign for policyholders
Why is Which? concerned about with-profits?
Which? does not think the Financial Services Authority’s (FSA) current rules do enough to protect the interests of with-profits policyholders.
We are concerned that the FSA’s rules allow companies a significant amount of discretion to run the funds in ways which benefit shareholders instead of ensuring that they are run in the best interests of policyholders. As a result we have been campaigning for the rules surrounding corporate governance and accountability to be strengthened so policyholders get a better deal.
We also believe more needs to be done to increase the transparency around the way the funds are run. With-profits funds are complex and opaque products and we are concerned the literature provided by many firms does not provide consumers with the information they need.
What is the regulator doing?
With the help of Which? members and concerned policyholders, we put pressure on the FSA to improve policyholder protection. In 2009 the regulator agreed to undertake a comprehensive review into the operation of with-profits funds. The FSA have now published the results of this review, and their findings confirmed Which?’s concerns - the review showed a significant number of firms are not performing adequately for consumers and highlighted concerns about governance and consumer communications.
The FSA is now taking action to ensure firms quickly improve their operations, for example by making immediate changes to their governance arrangements, and will consider disciplinary action if firms do not address the concerns. In addition the review made the FSA come round to Which?’s view that the rules around with-profits could be further strengthened to provide greater protection for policyholders. They are now proposing to introduce new rules which include restrictions on a firm’s ability to impose exit penalties when you cash in or move your policy, and preventing firms from offering 'loss leaders' which erode the amount in the with-profits fund for existing policyholders.
What happens next?
Which? is continuing our campaign to ensure that policyholder interests are better protected and will carry on engaging with FSA officials to press the case for change. The FSA reforms are very much a step in the right direction so Which? will be campaigning to ensure they are introduced.
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