Standard Life has outlined why it believes the 18th century concept of with-profits is appropriate f...
Standard Life has outlined why it believes the 18th century concept of with-profits is appropriate for stakeholder at the start of the millennium.
Speaking at Investment Week's pensions roadshow, John Taylor, regional actuary for the mutual, said with-profits combined equity returns without volatility, a combination that was as appealing today as ever before.
'Equities outperform gilts by around 6%per annum,' he said, 'so with-profits is good for stakeholder.'
He acknowledged the bad press with-profits has had, in particular its lack of transparency and a suspicion that appointed actuaries were being unfair to policyholders.
The charging limit on stakeholder has brought with it difficulties for groups looking to put some form of guarantee in their stakeholder with-profits offering.
Taylor said: 'The rules require that any stakeholder fund is ring-fenced. We have to prove we have taken no more than 1% per year out of the fund. That means if we put existing capital into it, we could only get that back at 1% a year. This is clearly not a fair use of existing with-profit policyholders' capital.'
Taylor went on to outline the group's thinking behind its own with-profit stakeholder offering which does not have this capital underpin: a fund without a guarantee element but which is up to 100% invested in real assets.
Standard Life believes the cost of a guarantee would mean too much of the portfolio would have to be in fixed interest. Taylor said that for a £1,000 investment the group wanted to be guaranteed £1,000 in 2021, he estimated around 50% would have to be in gilts.
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