The Consumers' Association wants a Higgs-style report on with-profits, which it says would sort out the issue of compensation for failing policies.
CA senior policy researcher Mick McAteer questioned at the MM round table debate on with-profits whether with-profits are suitable for the “middle mass market” of ordinary savers rather than the well-off or people with stable lives.
He said the CA supports the concept of with-profits but with-profits faces a massive task in restoring confidence and the FSA review had sidestepped the issue.
Practices have improved since the CA issued a harshly critical report on with-profits in 2000, said McAteer, but he questioned whether the improvement is permanent, partly because of the failure to change the way that with-profits is regulated.
He believes there is a massive conflict between plc directors' duty to shareholders and the “amorphous requirement” to treat policyholders fairly.
Policyholders would be shocked if they knew that life offices have legal ownership of the assets in the fund and that any compensation on a failed fund applies only to guaranteed parts of the policy, he said.
McAteer said: “I think the FSA with-profits review has managed to avoid the issues. The FSA has lost an opportunity in a review of the Financial Services and Markets Act. There is a massive task in rebuilding confidence. Consumers perceive with-profits as very risky.”
Prudential chief Mark Wood said the company would be happy to see the CA produce its report again, tested against with-profits during the bear markets and, in particular, Pru's offering.