Aviva policyholders let down by FSA, says Which?FSA hands Aviva £300m on a silver platter
21 September 2009
The High Court has approved Aviva’s application to ‘reattribute’ the £1.2bn inherited estate in its with-profits fund. Over 850,000 eligible policyholders are affected by this decision. Which? believes that policyholders have been badly let down by the FSA’s failure to protect their interests.
Which? policy adviser, Dominic Lindley, said: 'This is a sad day for consumers - once again they’ve lost out to a system that is pitted against them. Weak FSA regulation and a lack of legal protection, has lost policyholders millions of pounds. We need a fundamental change to the rules companies must follow, to stop what we believe is akin to daylight robbery, happening again.
'How bad does it have to get before the FSA protects policyholders, rather than just handing Aviva £300m on a silver platter?'
Where did the inherited estate money come from?
Some with-profits funds have built up money over time which is surplus to the amount needed to meet policyholder commitments and other obligations. This money is referred to as the 'inherited estate'. In many cases it was built up because companies held back too much money from policyholders during the ‘smoothing’ process. Norwich Union, Prudential and Legal & General are among the companies who have significant ‘inherited estates’.
What's the problem?
Companies say they use the money to ensure the stability of the funds, but in reality they don't have to use this money in policyholders’ interests. Instead they can take money from the inherited estate to pay shareholders’ tax bills, subsidise new business and even pay compensation when the company has broken the rules and mis-sold a policy.
Billions of pounds have been taken from the inherited estates for reasons like these. For example, Prudential used £1.6bn pounds to pay compensation for mis-selling, while Norwich Union used £202m and set aside a further £64m for this purpose.
For more details on with-profits funds, see our advice guide.
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