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Flowers, Chinese whispers and windfalls

The life industry received a bit of a shake-up this week as Friends Provident was understood to have had an informal takeover offer from US private equity firm JC Flowers.

JC Flowers has built up a 2.7 per cent stake in the insurer and reports over the weekend suggested it had already approached Friends with a 175 pence per share informal takeover offer.

It is thought that JC Flowers is waiting for the outcome of Friends Provident’s strategic review before making a formal offer to the board.

Friends is considering selling all or part of the company following its failed bid for Resolution and is due to reveal the conclusions of the review on January 31.

Resolution meanwhile has confirmed that chairman Clive Cowdery and the other directors will be resigning once the merger deal with Pearl goes through.

Prudential also caused a stir this week as its shares soared 10 per cent on Wednesday following reports that Chinese insurer Ping An Insurance was looking to buy a 45 per cent stake in the life office.

A Chinese business paper reported that Ping An was close to taking a £7bn stake in the life office and this morning Prudential was trading at 673.5p per share after closing at 626p yesterday.

Aviva is kicking up a fuss over the reattribution of the inherited estate on its with-profits funds.

Aviva says its policyholder advocate Clare Spottiswoode and consumer group Which? are acting as a barrier to the deal and has threatened to halt the inherited estate payouts unless they backed down.

The row centres around the distribution of the £5bn inherited estate with Spottiswoode arguing that policyholders should get near to 90 per cent of the fund in payouts while Aviva says it is only prepared to pay out around 50 per cent of the fund to policyholders.

Spottiswoode also argues that the fund should not be used to subsidise new business because this is unfair to current policyholders.

Which? is backing Spottiswoode and did not rule out fighting a legal battle to ensure policyholders get a fair deal.

On Tuesday, Treasury select committee chairman John McFall warned that the FSA could be in breach of competition rules by allowing insurers to use inherited estates to subsidise new business and pay misselling compensation.

McFall said this could put insurers with inherited estates in a much stronger position than new entrants.

Moving onto pensions, with the rather shocking news emerging this week was that the Government has already spent over £6m on fees for consultants to advise on personal accounts.

In a written answer this week, pensions minister Mike O’Brien said the Department for Work and Pensions has spent £6,604,522 on consultancy advice up to the end of October 2007.

Scottish Life head of pensions strategy Steve Bee wonders what exactly they have been consulting on and hopes it has been taken into account in the charges.

He says: “If that is where we are now, it is really worrying. This is a lot of money to have spent already considering we have another four years to go.”

Legal & General wealth policy director Adrian Boulding says: “The frustration that we feel is that when Legal & General brings new products to the market, we have to bear those costs ourselves and levy them back to the customers through charges.

“But these costs are being paid for by the taxpayer. The longer the subsidies go on, the more danger we are in of getting into unfair subsidies. If the subsidy becomes unfair, then the European Union will intervene and fine the Government.”

And there was yet more bad news for personal accounts as it turns out that around 50,000 people could miss out on the scheme because they have multiple earnings below the £5,000 threshold for auto-enrolment.

At a Pensions Bill committee evidence session last week, Personal Accounts Delivery Authority chairman Paul Myners said he was concerned that part-time workers with multiple employers will not be auto-enrolled into personal accounts because they do not earn above £5,000 with any individual employer.

Standard Life marketing technical manager Andy Tully estimates there are around 40,000 to 50,000 people who have more than one job and could be affected.

He says: “Although these employees could still opt into personal accounts, they will not get any employer contributions, but these are the very people that personal accounts are supposed to help.”

Pada chief executive Tim Jones told the committee he was looking to address the issue.


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