A Faculty and Institute of Actuaries' working party is serving life offices a do or die notice over with-profits this week, warning that unless they evolve, the concept will become extinct.
The ultimatum comes at the same time as ABI director general Mary Francis has issued a guide to life office chief executives on presenting with-profits to the media. She warns that unless everyone sings from the same hymn sheet, commentators will jump to incorrect conclusions following the Equitable Life debacle.
The FIA report raises fears that with-profits under stakeholder will be weakened unless life offices bolster the WP fund with orphan assets.
The report is a major blow to life offices that have committed themselves to with-profits within stakeholder, such as Standard Life and Norwich Union.
The actuaries suggest by ringfencing with-profits under stakeholder all guarantees and short-term smoothing costs will need to be financed within the fund unless a company is willing to subsidise the fund by dipping into its orphan assets or shareholders' funds.
Unless providers can do this, with-profits under stakeholder will be seriously undermined and less attractive to investors.
In Francis's guide, chief executives are instructed to tell journalists that: “Equitable's situation was unique and their problem did not arise from selling with-profits.”
Clerical Medical pensions strategy manager Nigel Stammers says: “If you lose the key elements of with-profits, then you throw the baby out with the bath water and end up with something which is not necessarily better but different, which may not be more transparent.”
Scottish Equitable business development manager Steven Cameron says: “The timing of the report could not be more relevant following the vitriolic attack by the Consumers' Association.”