Confirming that about half of all with-profits assets under management are now in closed funds and that consolidation of closed funds is inevitable, the Treasury Select Committee says the FSA bears special responsibility to ensure consumers are treated fairly on both counts.
About £160bn of investments are in closed funds, the Committee says, with consumers still confused as to the returns possible on these trapped assets.
”This is an issue in that policyholders often feel their savings are now trapped in policies offering lower prospects of growth,” the Committee states.
”It places the highest priority on the FSA ensuring that policyholders are treated satisfactorily through [the consolidation] process.”
Consumers should not have to pay “punitive” exit penalties and should receive a “fair share” of the “efficiency benefits” consolidation is intended to liberate, the Committee adds.
What would help is people bringing new money to the sector, but this looks unlikely, the Committee suggests.
”It is evident in many instances savers are no longer content to allow the managers of with-profits funds wide discretion or to accept limited disclosure of the funds on which their savings depend.”
”Many investors also do not understand the reasons for apparently large market value adjustment exit penalties and consider they are unfair. It is not clear from the evidence presented to our inquiry that either the FSA’s proposed reforms for existing with-profits funds – CP 207 – or the proposed disclosure requirements in the new smoothed investment Sandler products go far enough in terms of disclosure to satisfy consumer concerns in this area.”
As long as investors cannot regularly see the performance of the underlying investment fund and can be subject to MVA exit penalties without clear explanation there may e consumer reluctance to re-enter this area of the long-term savings industry.”
Part of the government’s role in encouraging savings in this area relates to the review of the actuarial profession sparked by the Equitable Life saga, the Committee notes.
The so-called Morris Review of actuaries set up in the wake of the Penrose Report into Equitable Life is welcomed by the Committee, but it still has scathing words for those supposed to look after policyholders’ interests.
”It is still far from clear to the Committee that the actuarial profession can be relied on actively to alert the public in cases where policyholder interests are being sacrificed in favour of the interests of management or shareholders.”
”We welcome the Morris review of the actuarial profession and consider reform here to be overdue. Nevertheless, any recommendations made by Sir Derek are necessarily going to take some time to implement. In the meanwhile, a period of rapid change is taking place in the with-profits industry and many of the charges could lead to particular tensions between the interests of policyholders and the interests of managers and shareholders of with-profits funds.”
”In the face of continuing doubts about the readiness of the actuarial profession to safeguard policyholders’ interests through this period of change we consider it particularly important that the FSA scrutinises closely changes and transactions in the with-profits area and demonstrates to investors that their interests are being preserved.”Confirming that about half the with-profits business in the country now consists of closed funds, the Treasury Select Committee says the FSA bears a special responsibility to ensure that those trapped in such funds are treated “satisfactorily”.
The Committee says this is because consumers with roughly £160bn worth of assets in closed funds feel their policies offer lower prospects of growthIFAonline
First mentioned in Cridland Report
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