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McFall: Why buy a with-profits policy?

Treasury Select Committee chairman John McFall has questioned why anyone would buy a with-profits policy when shareholders can “raid” the inherited estates created from the funds at any time.

Speaking at a TSC inherited estates hearing, McFall asked Norwich Union chief executive Mark Hodges and Prudential chief executive Nick Prettejohn whether the product was worthwhile, given that the firms can dip into their inherited estates, which policyholders may receive a slice of, to pay shareholder tax and miselling costs and supplement staff pension schemes.

He said: “It seems the cards are stacked in the firm’s favour and if we leave aside the reattribution process and just consider what normally happens to the inherited estate, you can do the following: you can underwrite new business, you can pay shareholder tax, you can pay miselling costs and indeed you can support the staff pension fund. The question arises, what safeguards are there for policyholders? Why would anybody want to invest in a product where part of the fund that might be distributed to them could be raided at any time by those who are trusted to invest that money for them?”

Prudential admitted it had used £1.1bn of the fund to pay misselling compensation and a further £500m on administrative costs involved in paying this compensation. Norwich Union said £183m had already been spent to pay misselling costs and another £80m had been set aside for future compensation.

McFall said the FSA seemed to be dragging its feet and queried whether the with-profits committee was “robust” enough to stand up to shareholders.

He said: “It seems to me the FSA is sitting about and actually looking at things in the round and not treating things as they should. The with-profits committee exists to protect the interests of policyholders in general. Certainly the question in my mind is how much of a robust challenge do they offer.”


Death of Sir Derek Higgs

Alliance & Leicester chairman Sir Derek Higgs died suddenly on Monday at the age of 64. He was the author of an influential report on corporate governance.

NU investment business down 34%

Norwich Union’s investment sales fell by 34 per cent to 436m in the first three months of the year from 657m last year.

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Internet giant Alibaba is exactly the type of entrepreneurial company that the high-conviction, top-performing Neptune Global Alpha Fund seeks to invest in. Established just 14 years ago in an apartment in Hangzhou, today Alibaba is larger than Amazon and eBay put together and is challenging some of the most powerful internet companies in the world…

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The value of an investment and any income from it can fall as well as rise and you may not get back the amount originally invested. Forecasts and past performance are not a guide to future performance. Some information and statistical data herein has been obtained from sources we believe to be reliable but in no way are warranted by us as to their accuracy or completeness. These are Neptune’s views and as such this document is deemed to be impartial research. We do not undertake to advise you of any change to our views.


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