As Norwich Union and Friends Provident introduced Market Value Reductions (MVRs) on over 1.4 million with-profits policies, Which? personal finance campaigner, Dominic Lindley, says:
“These penalties will come as a bitter blow to with-profits policyholders. There is no transparency about how they are calculated and many policyholders will not trust the company to apply them fairly.
“This could penalise those Norwich Union policyholders who had only stuck with the fund because of the promise of payouts from the reattribution and special bonuses.
“It may feed the impression amongst policyholders that when it comes to with-profits, what companies give with one hand they take with the other.
“It is essential that the FSA listens to the recommendations of the Treasury Committee and launches a comprehensive review of its regulation of with-profits funds.
“Anyone thinking of cashing in their policy should immediately contact their provider to find out when they would next be able to cash-in their policy without being subject to an MVR and consult an Independent Financial Adviser.”
Events earlier in the week
Norwich Union had said that a MVR of between 13% and 22% will be applied to unitised with-profits policies, depending on which year the policy was taken out. For example, units purchased in 1992 will be hit with an average MVR of 22%, but an MVR of 13% will apply to units purchased in 2001 and 2008. The MVR applies to partial or total withdrawals from CGNU, NULAP and CULAC funds.
Friends Provident has 1.3million with-profit policies in force. It says its MVR will apply to around 250,000 policies and these are mainly pension policies. The MVR will range from 5% to 14%. The main policy years affected are 1999 and 2000 although for some older policies where there is a guaranteed bonus rate of 4%, MVRs are applicable for most years of entry.
For more information on with-profits policies and how they work read our with-profits article.