Surrender values on traditional with-profits policies could be challenged by policyholders because life offices cannot calculate them accurately, say experts and IFAs.
The Faculty and Institute of Actuaries' working party report into with-profits shows many life office admin systems are inadequate and incapable of calculating accurate asset share or recording them on a policy by policy basis. The report says this makes it difficult or even impossible to calculate the appropriate balance.
IFAs and experts say surrender values are open to question and they accuse life offices of merely plucking figures out of the air.
Cazalet Financial Consulting financial analyst Ned Cazalet says: “There is about £150bn of conventional with-profits business in the UK and life offices do not have the systems to calculate asset shares accurately. This means that people can challenge surrender values because no one knows what the numbers are.”
FIA working party chairman Graham Clay says: “Most offices do not have records going back more than 20 years and there is some uncertainty on a policy by policy basis. Values are broadly accurate but not precise. Smoothing on the model is difficult but will be correct to the nearest £100, which in the context of a large policy is not that much.”
Wentworth Rose managing director Philip Rose says: “Life offices are not desperately keen to show how they arrived at surrender values. Actuaries pluck a figure out of the sky. If a client expected higher compensation from the pension review, you can end up with a different value. It makes things challengeable because it is based on actuarial discretion.”
Scottish Life head of communications Alasdair Buchanan says: “Asset shares are a technical part of actuarial communications. We can get hold of all the information we need. This is not an accurate description across the industry.”