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Arrogant actuaries have lost the way for with-profits

Terence O&#39Halloran is certainly keen on his insurance (Money Marketing, October 25). He has lambasted Roger Harris and has allowed his heart to rule his head.

With-profits endowments for savings are inappropriate in the majority of circumstances. They are tax-inefficient, inflexible and very expensive.

Individuals have far more flexible and cost-effective arrangements available – as well as personal tax allowances – which are better than the life insurance industry rehime. This is before considering the tax treatment on gilt profits or more technical considerations.

The with-profits industry has much to answer for. Its actuaries have been – and are – arrogant and patronising. They have lost their direction when compared against the industry&#39s most honourable roots.

Exorbitant commission and selling costs are debited to the fund, as well as the opportunity to deduct pension misselling compensation, fines and any other charges fancied, under the label of “business sharing”.

For a mutual, there is no choice – but for a proprietary company? Indeed, for the regulator to allow these costs not to be shown within individual presentations to clients is misleading, to say the least. How about passing the bulk of previously undistributed, “orphan” reserves back to the proprietary company?

The latest “trick” is market value reductions. And there was the reluctance to use the word “reduction” – even though I am unaware of any upward adjustment.

The industry must stop selling these products as safe and stable when small print provides a cop-out and the next scandal – which would be far worse than the Equitable Life debacle. Indeed, even the biggest is not prepared to give a guaranteed exit without MVR, retaining discretion on everything at all times. Surely death as the only certainty is of little consolation?

Mr O&#39Halloran&#39s view seems to be the usual excuse used by the heavy smoker trumpeting that his 98-year-old grandfather smoked until he died. How much evidence is needed?

The ideal tax and cost wrapper for individual investors is probably an investment trust. The challenge to the industry must be to adapt this wrapper to generate smooth returns – if that is what investors want.

If the average adviser really understood how much discretion the insurance companies have over their with-profit funds then he is likely to stop using them. Ignorance is no excuse – even though the opaque nature encourages it. If the concept had just been invented, who thinks the regulator would agree to it?

And is it not strange how quiet all these companies have been about the levels of their reserves these last few months. I wonder why?

Philip J Milton

Barnstaple, Devon


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