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Life offices send out invitations for anniversary

In a rare piece of good news for with-profits investors, Scottish Widows and Clerical Medical are to write to thousands of their policyholders to inform them of MVR-free anniversary guarantees for the first time.

Life offices, which wrote these guarantees into their policies, typically effective on the 10th anniversary, have been accused of failing their customers by not telling them of this right which is often hidden in the small print.

But in a move that some say takes the FSA’s treating customers fairly initiative further than required, some life offices are now trying to be more transparent about these guarantees despite the fact they could cost them millions of pounds. Voluntary super-equivalency is certainly a rare thing outside of the regulator’s policy office.

Closed life fund consolidator Resolution Life was the first to introduce this practice last November for policyholders in the Royal & Sun Alliance with-profits funds which it bought in July. Resolution also promised to keep the window of the guarantee open for three months whereas the opportunity has previously been restricted to the single day of the anniversary. Given that these policies were bought 10 years ago, only eagleeyed advisers are likely to have spotted this as most clients are unlikely to remember.

Not only did the move generate much deserved positive publicity for Resolution, it also upped the ante for the rest of the life office universe.

To their credit, Scottish Widows and Clerical Medical have risen to the challenge and other major life offices including Scottish Equitable and Norwich Union are looking into reminding clients of their guarantees. Neither has significant anniversary dates on the horizon for at least 18 months.

There are no explicit requirements from the regulator for life offices to tell clients of the MVR-free window.

FSA spokesman Joseph Eyres says: “There is an overriding objective for life offices to treat policyholders fairly and, arguably, you could say that they are obliged to inform policyholders but this is not an area that is covered by our rules.”

Hargreaves Lansdown head of pension research Tom McPhail says: “It is difficult and you would cross a rubicon if you force insurers to write to people to remind of something that is to the detriment to the life offices. But you can make an argument that they are morally obliged to after getting themselves in a pickle in the 1990s and this is exactly the sort of measure that will help restore confidence in the industry.”

It is a difficult decision for the life offices, particularly the listed ones as the priority is generally the shareholders rather than the policyholders.

Norwich Union chief executive Gary Withers acknowledges this but considers it must be balanced with the need to restore confidence in the product and life offices in general.

He says: “It is an important issue and an active discussion will take place at the time and we will do what is right for Norwich Union.”

Syndaxi Financial Planning managing director Robert Reid says the decision was probably easier for Resolution because the Royal & Sun Alliance with-profits funds are closed to new investors.

He says: “The funds are not trading any more and you cannot ignore that. They are probably in a better position to assess their long-term liabilities so I am not sure the move is a lot more than an accounting procedure for them.”

He also wonders if this could cause issues for IFAs who fail to remind their clients or act around the MVR-free windows. Reid says: “It prob-ably throws pressures on the IFAs and they could be held culpable if they sold policies but failed to inform clients of the guarantee.”

Several other major life offices, including Prudential, Standard Life and Legal & General, do not have to face a decision over MVR-free guarantee dates. Pru and Standard Life never offered them while the last of L&G’s was in 2003.

The decision to write to policyholders was also an easier decision for Scottish Widows to take than Clerical due to the nature of the former’s guarantee.

Widows’ policyholders will not need to encash their policy to obtain the guarantee as the equivalent value of it will be added in the form of extra units regardless. The first anniversary date for the group comes up in November.

Clerical policyholders, who are at least a year off their anniversary date, are likely to be offered free switches into the company’s unit trusts. Investors will just have the one day to take advantage of the offer.

Scottish Widows head of savings and investment marketing David Lascelles says: “We will effectively treat the policy as not having an MVR after the guarantee date but we will be encouraging policyholders to stay with us and free switches into other Scottish Widows’ products may be another option that we offer.”

Clerical Medical sales director Graeme Riddoch says: “We realise there is a risk that some money will move out of the funds but the move is about treating policyholders fairly and we are still working on what we will offer customers.”


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