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Industry&#39s anger over FSA bonuses warning

The FSA is warning life offices to use prudence when determining annual bonus returns in what is seen by the industry as a bid to prevent another Equitable Life debacle.

In a statement released this week, FSA managing director John Tiner said: “Companies should set bonus rates at levels that do not jeopardise payments to policyholders in future years.”

He said the regulator exp-ects life offices to justify declarations they make and to demonstrate to what extent they balance smoothing of returns and prudent management of their resources.

But IFAs and providers say the warning smacks of a nanny state, with the FSA trying to unduly influence commercial decisions made by life offices. Providers say they do not intend to change their practices as a result of the FSA&#39s call.

Following the criticism it received over its handling of the Equitable debacle, it is thought the FSA wants to be seen to be cracking down on life office practices.

Over the last year, the majority of life offices ann-ounced cuts to their reversionary bonuses, with Standard Life being a noticeable exception. Most are expected to announce next year&#39s levels by February, hence the timing of the announcement.

Wentworth Rose managing director Philip Rose says: “It smacks a bit of a nanny state. The industry is now being told how they can set their bonuses even though that is the basis of competition in the industry.”

Cazalet Financial Consulting principal Ned Cazalet says: “The FSA is partly tubthumping. It knows it needs to be seen as being aggressive after Equitable Life. But it is a worrying state of affairs when the FSA has to tell life offices to be prudent.”

Scottish Mutual pensions director Leslie Gray says: “It seems like finger-wagging at life offices. There are no specific instructions, it just seems a way for them to flex their muscles.”

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