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CII warns of looming with-profits scandal

With-profits annuities and income withdrawal will be at the centre of the next finan-cial services scandal, accor-ding to a damning report from the Chartered Insurance Institute.

The stark warning comes as the CII issues an appeal to life offices to clean up their act or face being dragged over the coals by the FSA and the national press.

The warning is part of an explosive report by the CII&#39s Fellows&#39 working party on Retirement Planning in the Current Legislative Framework.

The report was published this week at Westminster and City Programme&#39s fourth annual annuities conference in London.

Chairman of the CII working party and Evergreen Retirement Assurance corporate development director Robert Bullivant said one of the key concerns is whether with-profits members are subsidising “imprudent commission” on stakeholder-friendly plans.

The institute also warns that the with-profits market is ripe for exploitation through high and hidden charges, poor service and opaque returns from life offices.

Bullivant highlighted how with-profits returns and deductions are only known to actuaries, making it impossible for IFAs to make sound recommendations.

Bullivant accused life offices of using outdated mortality projections to generate higher annuity rates to win market share. The CII is urging IFAs to boycott life offices which do not disclose mortality calculations.

The CII revealed a “worrying” lack of investment in direct equities within income- drawdown products and a bias for with-profits and fixed-interest funds, raising alarm over whether the required yields needed to pay the client&#39s income can be met.

The CII also says the commission issue needs to be urgently reviewed.

Bullivant said: “There is considerable commission bias for with-profits annuities and fund withdrawal. Life offices need to deal with this in order to give the national press one less thing to attack the financial services industry for.”


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