Small life offices withhold with profits surrender values

When the FSA added Forms 59A and 59B to the annual life office returns in 2006, the illustration of with profits life and pension plans was based entirely on criteria set down in Money Management endowment and pension surveys.

Since all these figures are now added to our regular surveys, policyholders, especially those with policies with closed life offices, are able to compare examples of how these life offices are performing compared with their peers.

However, the regulations surrounding Forms 59A and B state that, where a life office’s liabilities fall below £100m, the life office no longer has to complete Form 59. Whilst the life offices still provide

information to their individual policyholders, of course, policyholders have no way of knowing whether the illustrations they are receiving represent good value or not, because there is nothing to compare them with.

While the majority of these firms are friendly societies for which the average premium is much smaller than the benchmark set, some are consolidated providers. However, the FSA maintains that the purpose of this rule was to reduce the burden on smaller firms and to prevent reporting of payouts based on a very small number of cases distorting the industry average.

Whilst cost considerations are important, Money Management would like to see all providers complete the Form 59 section of the annual FSA returns regardless of size of liabilities, as increasing numbers of IFAs are

complaining about a lack of information by which to assess these companies’ with profits performance which makes advising clients almost impossible.

John Stewart, director of Essex based IFA, PMI Financial, said that life offices were taking advantage of the rules. He said, “It doesn’t

matter if you’re a large provider or not, advisers need to know this information, especially if the policies are not meeting expectations.”

Pearl Group, which owns a number of closed with profits policies, does not declare

surrender values for some of its funds because they have been merged with other policies when the fund has been taken over. For example, its Phoenix Assurance fund merged into Phoenix Life in December 2005, but Pearl states that all policyholders are sent regular updates with the performance of the policy.

The September edition of Money Management is now available online to subscribers here.