With-profits rip-off

Which? is calling on the Financial Services Authority (FSA) to act to prevent £7 billion of with-profits policyholders’ money being ‘reallocated’ to shareholders.

Without a change in FSA policy, millions of Norwich Union and Prudential policyholders could lose out. Which? believes it is unacceptable for the Government and FSA to stand by and do nothing to stop this.

Latest news

We've just made a submission to the Treasury Select Committee's inquiry into the issue of inherited estates calling on the FSA to ensure a fair deal for policyholders.

If you think this could effect you, the document is available at the bottom of this page.

With-profits

With-profits funds such as an endowment, a personal or employer's pension, or an annuity, adopt a process known as ‘smoothing’. This means that some of the returns to policyholders in good years are held back and added back to the fund in years when returns are poor.

Inherited estates

In several cases, firms have held back more than necessary and built up funds that are known as an ‘inherited estate’. 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.

The rip-off

Which? believes that these assets should be allocated in the normal way of with-profits funds: 90% should go to policyholders, 10% to shareholders. However, there is nothing to ensure that this happens.

In 2000 the FSA and the courts approved a deal which saw insurer Axa return just 31% of its inherited estate to its policyholders. Its shareholders kept 69%: around £1 billion!

Unless the FSA requires firms to attribute the assets on a 90:10 basis, and stop companies using this money to benefit shareholders, Norwich Union and Prudential policyholders could be presented with a similar deal. This would see a whopping £7 billion taken from them and transferred to shareholders.

Campaigning for a better deal

Which? has been standing up for policyholders and pressing the FSA to ensure that the money is allocated on a normal with-profits basis, with 90% going to policyholders. We think the FSA should stop companies using this money in ways that don't directly benefit investors, such as paying shareholders' tax bills.

We believe that the FSA has failed to guarantee the interests of policyholders, and we will continue to make our voice heard.

Read on to find out more about how this issue affects you and how you can help our campaign. After all, £7 billion could be at stake!