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&#39With-profits being vilified unfairly&#39

With-profits is being forced out of existence by obsessive regulation and negative publicity, says Datamonitor.

Its new report says despite with-profits being a strong product for long-term savings, it will play a much smaller role in future as managed funds, distribution funds and eventually capital guaranteed funds become the main underlying investments.

It believes this is due to “regulatory obsession with transparency and potential misselling combined with a concerted media campaign against them”.

Bad publicity has contributed to 56 per cent of IFAs reporting either a negative or very negative reaction from clients when they mention with-profits, says Datamonitor.

It predicts that new pension with-profits premiums are set to fall to £700m annually y 2007 from £1bn last year.

The report says the projected collapse of with-profits is undeserved and policyholder disappointment has been exaggerated. It also believes that the mortgage endowment shortfall controversy has been exaggerated and falsely blamed on with-profits.

The report suggests new smoothed managed funds, which are suggested to provide the solution to the criticisms of with-profits, are an “uneasy compromise” and only offer smoothing over a shorter period in order to provide transparency.

Datamonitor life and pensions analyst Nicholas Stephens says: “With-profits remain a strong product, more sinned against than sinning.”

Liverpool Victoria head of external affairs Nigel Snell says: “All this negative talk about with-profits is really ill advised. The worst thing that can happen from the consumer&#39s point of view is that people will be encouraged to surrender their policies early, when in many cases they would be better off to let them run the full length.”

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