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Nic Cicutti: My fury at industry over closed-book pensions rip-off

Nic Cicutti

If you were to ask regular readers of Money Marketing to describe the underlying tone of this column in a single word, my best guess is the term most would use is “rant”.

“Rant” is defined in dictionaries as “to speak or shout at length in an angry, impassioned way”. So I can kind of understand why advisers feel I express myself that way, even if most of the time I try to use mockery rather than anger as a way of stimulating discussion.

Occasionally, anger does find expression in what I write – and nowhere is this more likely than in the case of closed-ended funds, which the FCA has finally published its report into.

The FCA’s report comes two years after the regulator mucked up by incorrectly briefing the Daily Telegraph that it was planning a wholesale investigation into more than 30 million life insurance policies sold from the 1970s to the end of the 1990s.

Instead of the 30 million figure, as MM makes clear in a searing analysisinvestment-based life insurance products sold before 2000 by 11 providers with around £150bn in closed-book products across 9.4 million customers”.

The FCA found customers were repeatedly misinformed about the charges applied to their policies, or the literature they were sent actively tried to persuade them of the benefits of transferring out. In several cases, providers stopped sending out any statements to paid-up policyholders.

The financial consequences of such actions for consumers should not be underestimated. The FCA identified one policy worth £4,350 in 1992, where a customer stopped contributing and the annual management charge increased by 6 percentage points to a massive 7.25 per cent. By 2014 the policy was valued at £3,300 – which then dropped to just £1,500 when an exit fee was applied following a transfer the same year.

Incidentally, one possible answer to MM editor Natalie Holt’s point that “again and again, the FCA dances around the subject of whether there was intent to mislead on the part of the providers” is no insurer would be mad enough to allow, say, an email trail to exist, allowing the regulator to state unequivocally this was deliberately the case.

The regulator is painfully aware of the legal consequences of making allegations it cannot stand up in court. But any journalist who has followed this issue for many years cannot avoid calling it for what it is.

Let’s not forget the other element to this story. Back in March 2014, a hapless FCA director made a mistake in his briefing of the Telegraph.

Share prices in companies with high numbers of closed-book policies plummeted, before recovering after a day or so. The Association of British Insurers’ acted with amazing alacrity.

Within hours the trade body contacted the FCA urging them to clarify the scope of the review. Compare and contrast the swiftness of its response with the glacial pace at which the ABI has acted to actually end this scandal.

We are not talking two or three years either. Back in 1997, shortly after being appointed personal finance editor of the newspaper where I worked, I had the – admittedly rare – brainwave of commissioning former Office of Fair Trading director John Chapman to write a long report on pensions.

Chapman had previously written articles for a monthly trade magazine that were well-received but technically obscure. But his insight and knowledge shone through and he delivered a blockbuster for us, which we ran over four pages, with charts and additional analysis.

Re-reading his copy today, what stands out is Chapman’s total grasp on the myriad sneaky ways in which insurers were using every trick in the book to overcharge their policyholders.

I wrote on the subject in April 2012, when Thoresen made an empty promise to Money Marketing on the ABI’s behalf to remedy the situation.But actually, as Chapman’s articles showed almost 20 years ago, the scandal dates back at least that long, and probably a lot longer.

So why, if the evidence has always been so strong, has the ABI looked the other way for so long? The unavoidable conclusion is that the reason Thoresen and the ABI have refused to do anything is not insurmountable technical obstacles, or because the Department for Work and Pensions was refusing to give providers the power to bulk-transfer occupational scheme members to new and better plans.

My guess is over the past few years insurers have calculated the profits they could continue to make for a few more years from the excessive charges levied on millions of their policyholders. They have then compared these profits with the consequence of losing that money versus the fines that might be incurred from the regulator.

The industry’s cost-benefit analysis is that no matter what the long-term opprobrium, they stand to make more money by playing dumb and refusing to engage with any attempt to reform the system.

Given all this, could anyone really object if the response of any journalist of whatever stripe were to be anything other than complete fury at the way the insurance industry has ripped off millions of consumers?

Angry? You betcha.

Nic Cicutti can be contacted at Follow him on twitter @NicCicutti



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What first struck me when reading the FCA statement on the outcome of its closed-book review was how carefully worded it was. The regulator’s thematic review into “the fair treatment of long-standing customers in the life insurance sector” (the phrase “closed-book review” is a dirty word now apparently) sets out clear examples of the poor […]


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The FCA’s explosive review into how firms treat investors in antiquated products has exposed the failure of the treating customers fairly regime and could spark a fresh wave of compensation claims. The regulator’s long-awaited report into the life and pension sector’s closed-book businesses reveals the full extent of firms’ exploitation of long-standing customers. Running in […]

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The FCA’s explosive review into closed-book providers has exposed the “massive failure of the treating customers fairly regime”, say advisers. Advisers say providers have finally been held “bang to rights” as the FCA investigates six firms for widespread failings around how they treat closed-book customers. Following the review six out of 11 providers have been referred to […]

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Six providers have been referred to FCA enforcement after the regulator uncovered widespread failures as part of its closed book review. Abbey Life, Countrywide, Old Mutual, Police Mutual, Prudential and Scottish Widows will be investigated to uncover the extent of disclosure of exit fees and paid-up charges, including after December 2008. Abbey Life and Old […]


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There are 14 comments at the moment, we would love to hear your opinion too.

  1. Spot on, Nic. The Company that’ rose from the flames’ is currently charging MVRs of 34% plus, even when there are only 6 months to the member’s Normal Retirement Date. Greed and total lack of treating the customers fairly! Where is the FCA or the ABI or Govt of the PFS on this scandal?

  2. Nothing like my fury at continually having my human rights revoked by unaccountable theorists

  3. I feel your pain Nic, please allow me to make some changes to your closing statement……

    Given all this, could anyone really object if the response of any IFA of whatever stripe were to be anything other than complete fury at the way the FSA/FCA/treasury has ripped off millions of the financial services industry ?

    Angry? You betcha.

    Its the same the world over, you cannot liberate and protect one section of society with the persecution and enslavement of another ! as one thing is always true, the ultimate beneficiary is and will always be those at the top of the food chain………

  4. Business is Business my boy – FCA fees and fines to pay ! I agree that it is an horrendous situation that 000’s of investors with small sums have been targeted in this way or have they ? – who else was going to pick up the administration and support for these policies. A company has charged £1500 + amc’s of circa a maximum of £239.25 to taken on the responsibility of administering the account for over 22 years – profitable ? Of course it is profitable or the company would face the wrath of the city that it feeds. The question to ask is what were the barriers to prevent these small policies from being moved to better scheme’s in terms of cost of administration and the cost in terms of time in administrating the transfer. The company could not just send the client a cheque and get rid of them – legislation prevents it.
    Surely you would not expect the providers to move the funds to loss leading non profitable plans for free ?.
    The question should be – how can these funds be extracted from the “hole” that they are in and keep the costs down. The regulation compliance costs for reviewing a £3k fund are similar to a £300k fund – that is a large part of the problem and has been for the past 22 years and is likely to continue to rise.
    Is it any worse then a £40k mortgage stuck on standard variable rate of say 5% due to the cost of change in fee’s etc negating any possible saving.
    Small investors and small borrowers are expensive to administer as the compliance costs are proportionately higher – that is the world we live in – don’t rant – campaign for practical solutions, eg – designate funds as eligible for transfer out without adviser FCA compliant documentation, allow encashment below £10-20k-£30k with no taxation at any age if they have run for 10 years or more. Allow companies to distribute dormant funds to a government central charity if no address registered on file for 10 years. I am sure there could be many potential solutions that would reduce the effect of the problem of the administration of small sums of money.

    • Like you David, I believe in making pragmatic suggestions for solutions to problems. That is what I had been trying to do with the FCA over the longstop problem, but as with the clsoed book issue, the big guns lobby wins everytime as they control OUR purse strings (i.e. open it without our consent) and pay it to their mates.

    • “Is it any worse then a £40k mortgage stuck on standard variable rate of say 5% due to the cost of change in fee’s etc negating any possible saving.” – Not quite right – There are Lenders offering re-mortgage packages with No arrangement fees, Free Valuation & Free Legals – e.g. Nationwide 2.54% 5 year fixed rate – considerably cheaper than “standard variable rate” !!

  5. Perhaps a slightly unrelated comment, but I think that to use mockery/a mocking tone is worse/more offensive to the audience than anger/upset/disappointment etc. The former is patronising, irksome and elicits an angry response (in most cases); the latter is a plain expression of feeling, which the reader/audience is generally better able to process and respond to in a more dispassionate way.

    So go ahead and be “angry” and “impassioned”, but don’t mock those who are trying to make a living through financial services and who believe that what they do is credible.

  6. headbelowthe parapet 18th March 2016 at 1:22 pm

    Yep, we’ve always known that the insurers are a bunch of rip-off merchants – this will continue…

  7. 2nd time in two months im saying well done Nic. What is the world coming to?
    This is, as Nic says a complete and utter disgrace and in a so called regulated industry why is this utter farcical situation still in existence. We need to pressurise the government and regulator to act on this NOW , its criminal. A new sunset please, if you can do it to advisers you cam do it to these Fagin like organisations – and sooner rather than later please !!

  8. It is kind of ironic that this week the government should announce the launch of a Lifetime ISA with an exit charge of 5% Nic could well recycle this article in a few years time and replace “closed book” with “LISA”

  9. Why now Nic? This has been going on for years. When was the last time an old Scottish Mutual With Profits pension paid a bonus? When Noah was in short trousers. The bird in the fire has more than one way to rob clients. As I posted elsewhere perhaps the bird’s asbestos coating is due to the fact that their big banana is an ex regulator, who craftily keeps himself off the board so his salary doesn’t have to be disclosed.

    (PS. Nic- you have boobed. 3 para – split infinitive – you are better than that – the red mist must have affected you!

  10. Your best guess is way out Nic. Definitely more appropriate words to describe your work, with the same number of letters!

  11. Yes, the practices you cite Nic are both dreadful and commonplace and in most cases can be summarised as the unreasonable exercise of discretion when nothing specific has been set out in the contract terms. Why has the regulator allowed them to continue unabated for so many years?

  12. Just as an MVR is not the type of exit penalty that FCA is riled about, a rant is not informed opinion. I have no axe to grind for insurers but fairness to all is the issue, not just those that want to transfer.

    Is it unfair that some companies (including Mr Thoresen’s) offered 20% and higher enhancements to single premiums but included a decreasing exit penalty for obvious reasons? Or that transfer policies replicating the ceding policy values might impose a penalty because the transfer amount received was considerably less than the benefits they were offering?

    Nic, you must delve deeper into the facts, what the insurers received, what they paid out in commission and whether the policyholder could have avoided or reduced the loss. The Equitable farce demonstrated that policy ‘values’ are worthless but by quoting them without qualification, you risk rewarding commissioned policyholders so that they are significantly better off than others that paid reasonable fees, or even excessive fees.

    I can understand why the regulator is reluctant to get involved because it will have to decide what fairness actually means, a problem that its predecessors’ inept rules on illustrations may have made all the worse. However, the request of a trade body (ABI) for the FCA CEO to resign was entirely reasonable given that the regulator had issued market sensitive information about some of its members, in breach of another regulator’s rules. If your pension fund had been affected by such crass disclosure, would you also have been demanded the same? Perhaps you did?

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