Response letter to Peter Rutherford & Co technical manager Mike Gordon
I have received your letter dated May 2 which appeared in Money Marketing
You claim that Friends Prov-ident is using the proposed demutualisation
“to hide a change in the membership rules” and that such a change “cannot
be in the interests of members”. We firmly reject both these claims.
We have not in any way hidden the proposal to extend membership. The
circular is open, transparent and explicit in this regard and I would refer
you to a key paragraph in the two-page summary on pages three and four of
The paragraph headed Eligibility on page four refers clearly and in plain
words to the extension of membership as an integral part of the proposal
and quantifies the impact of this element of the proposal by informing our
members that such an extension will reduce the demutualisation benefits of
the existing holders of “eligible with-profits policies” by approximately
4.7 per cent.
I am disappointed that your letter makes no mention of this clear
disclosure and seeks to imply that it is apparent only to those who have
“taken the time to read the small print in your 88-page members' circular”.
The proposal to extend membership is also covered in paragraph seven on
pages 14 to 16 of the circular, where the reasons are set out why the board
felt it was fair and reason-able to extend membership to those
policyholders whose membership had ceased through no fault of their own
after the announcement on May 4, 2000. While you seem to dismiss its
importance, the independent actuary (at paragraph 5.4 on page 49 of the
circular) regards the proposed extension of membership as being “in line
with good practice” (it has happened in a number of earlier
demutual-isations) and supports this element of the proposal, stating that
in his view the “resulting dilution…. is acceptable”. You will,
therefore, understand that I cannot accept that the proposal to extend
membership has been hidden in any way.
You claim we are being undemocratic as to the voting process by including
the proposal to extend membership rights within the proposal to
demutualise. We reject any suggestion that we are being undemocratic. The
board has had to consider many issues to arrive at a proposal which it
believes to be fair. In doing so, the board has applied a consistent set of
The alternative policy of a series of separate resolutions on the
individual issues could extend to many aspects of the scheme and would not
only be impracticable but would result in a much lengthier and more complex
process. Furthermore, such an approach could result in a conditional
approval which would be unworkable.
You also raised the issue of the extent of benefits to matured or “well
advanced” policies. The general allocation of shares is based on growth in
asset share of the policy. Those policies that have been in force longest
have contributed most to the growth of Friends and are being rewarded
The timescale for voting is entirely in line with leading practice and the
demutual-isation process is not in any way being “rushed through”.