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&#39Life companies cutting WP payouts by stealth&#39

IFAs have attacked life companies for being uncooperative and sneaking in changes to with-profits market value reductions and payouts by the back door.

The attack follows Norwich Union&#39s announcement last week that it was cutting with-profits payouts by 5 per cent, attracting widespread media coverage but IFAs claim that other companies have been making similar changes surreptitiously.

At the end of June, Axa imposed a cut of up to 5 per cent on payouts, increasing it this week to 6-11 per cent.

Scottish Equitable says it has imposed a fluctuating MVR of up to 20 per cent since last year. At the end of June, Scottish Widows introduced an MVR of up to 15 per cent, which it increased to 22 per cent this week. On July 22, Clerical Medical introduced an MVR of 15 per cent.

Accountants Ernst & Young have waded into the debate, criticising life offices for poor communication with policyholders about the impact of falling stockmarkets on with-profits products.

The FSA says it will examine if companies are in breach of their duty to treat policyholders fairly.

Pretty Technical partner Kim North says: “The companies have a due diligence responsibility, especially to the IFAs who advised on the products in the first place, to give information even if it is hard to do actuarially. If NU can give out the information, then the other companies can too.”

Chartwell Investment associate director Patrick Connolly says: “It is a nightmare keeping abreast of what is happening. There should be pressure put on the companies to tell the press and investors about payouts and MVRs rather than sneaking it in.”

ABI spokesman Malcolm Tarling says: “There is no requirement for life companies to advertise a change in MVR. If companies write to policyholders every time they change their MVR, all it will do is scare policyholders.”

FSA spokesman Robin Gordon-Walker says: “Companies should make clear any material changes to the policy under the principles of treating customers fairly as well as general business practice. Action could be taken against them if they are found in breach.”

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