Inherited estates
Big assets have built up, but who do they really belong to?
Big assets have built up, but who do they really belong to?
Norwich Union and Prudential want to buy out policyholders’ rights to a share of the money which has built up to support their investments.
With-profits funds such as an endowment, a personal or employer's pension, or annuity, adopt a process known as ‘smoothing’. This means that some of the investment returns in good years are held back and added back to the fund in years when returns are poor.
Prudential and Norwich Union have built up inherited estates of some £14 billion
In several cases, firms have held back too much money and built up funds that are known as the ‘inherited estate’. They are also sometimes called 'orphan' assets because no one can say who owns them – they've been collected from the funds of generations of policyholders.
Norwich Union and Prudential are two of the firms that have held back too much over the years: between them they have built up £14 billion in inherited estates. Norwich Union has announced that it will distribute £2.3 billion of its inherited estate, but this still leaves them with £3.2 billion.
Government policy is that as a general rule these assets should be allocated 90% to policyholders and 10% to the shareholders of the company with the inherited estate. This reflects the way insurance companies get paid for managing the funds – usually 10% of the profits.
However the legal position of policyholders in relation to shareholders means that companies do not have to follow this rule.
Instead of ensuring firms treat their customers fairly, the FSA allows firms to use money from the inherited estate for a variety of purposes, reducing the amount available for policyholders.
Among the practices that the FSA allows are using the inherited estate to pay shareholders’ tax bills, subsidise new business and, even to pay compensation to victims of mis-selling.
Find out more about the situation with Norwich Union and Prudential, and how this issue affects you.
Office of the policyholder advocate
Website including detailed information on the Norwich Union issue, including how to check whether you have a qualifying policy, and a timetable.
Pru With-profits policyholder's advocate Brief information on the Prudential with-profits issue.