View more on these topics

NU is sticking with tradition on with-profits

Other providers are offering stakeholder with-profits products but NU will crosssubsidise its bonus rate, presently 5.75 per cent, from its existing fund.

The prospect of one group of policyholders potentially subsidising another is not problematic for NU, which says the likelihood of the guarantees being called upon is slim.

DSS ringfencing rules mean traditional with-profits policyholders will never get any money from the stakeholder fund in return for any subsidy they provide. But NU argues that the benefit in growing the business into the stakeholder market offsets any potential loss that the traditional with-profits policyholders may incur.

NU&#39s duty to its policyholders is to have regard to their reasonable expectations. It has decided it is in the greater interests of traditional with-profits policyholders to be with a company which is succeeding in stakeholder but this interpretation is not held across the industry.

Legal & General pension strategy director Adrian Boulding says: “We looked at with-profits for stakeholder and the issue of whether you can crosssubsidise. It is very plainly a one-way valve. To have a one-way money flow contravenes the reasonable expectations of policyholders in the old with-profits fund.”

But NU risk actuary Tony Horn says: “If we become a major provider for stakeholder, we enhance the brand and the benefit for the existing fund is that costs would reduce. There is a cost in guaranteeing the returns on the other fund but it is offset by being a bigger player.”

The FSA sees no conflict between cross-subsidising one fund with another if it helps to grow the overall business.

Spokeswoman Jackie Blyth says: “Companies can use free assets to support new business growth to maintain market position and strength.”

The Consumers&#39 Association, which has been critical of the whole with-profits proposition, says it also has reservations over the cross-subsidy structure. It says the complexity of the cross-subsidy underlines its principal argument over with-profits.

Principal researcher Teresa Fritz says: “Companies are running stakeholder products as a loss-leader but I would not want to see them propped up by orphan assets. It appears Norwich Union is giving guarantees to the detriment of loyal policyholders. Stakeholder is supposed to be simple but I do not think many policyholders will understand what all this means.”

Analyst Ned Cazalet does not believe the new stakeholder products labelled as with-profits are actually with-profits. He says: “It is not with-profits as we know it, it is a smoothed equity fund. With-profits are an historical accident. You would not set one up today, as where will the capital come from?”

Which brings us back to NU trying to give more of the features of a traditional with-profits fund than other providers, namely some sort of guaranteed return.

Wentworth Rose managing director Philip Rose says: “I applaud Norwich Union for grasping the nettle of with-profits for stakeholder. Whatever else is said about with-profits, it is still popular for low-income customers. How can companies play in the stakeholder market if they are not prepared to make this sort of commitment?”

Horn says: “If we did not have stakeholder with-profits funds, then the whole stakeholder proposition cannot work. This structure is better for Norwich Union, the industry and the Government.”

Recommended

No flat caps from the Marsden

Marsden Building Society has designed a four year capped rate mortgage that is available for loans of up to 90 per cent of valuation.The mortgage has a capped rate of 5.99 per cent until June 30, 2005 and an arrangement fee of £295 must be paid.If borrowers redeem in the first four years, they must […]

Stocktrade offers unit trust discounts

Internet and telephone dealing service Stocktrade is offering discounts on a range of unit trusts and Oeics from 18 fund managers.The discount will mean investors can buy funds from Aberdeen , ABN Amro, Credit Suisse, Gartmore, Jupiter, M&G, Schroder and Threadneedle from as little as 0.5 per cent initial charge.Stocktrade business development manager Rollo Wilson […]

FSA backs down in tree-walk commission battle

The FSA has climbed down on its ban over IFAs being paid commission on stakeholder when life office representatives take IFA clients through decision trees.The move is a victory for Aifa and IFAs whose lobbying contributed to the FSA&#39s Regulatory Update 88 which confirms that IFAs will be paid for their advice even if life […]

Henderson grooms new fund for stable

Henderson Global Investors has added the independent international portfolio trust to its fund of funds stable.This unit trust aims to deliver capital growth by investing in unit trusts and open-ended investment companies that have a global focus. Fixed interest securities can also be included in the portfolio.The independent international portfolio trust allows investors to access […]

Allianz Technology Trust – April 2017

Welcome to the latest update for Allianz Technology Trust PLC from the Trust’s portfolio manager, Walter Price. Portfolio review The Trust’s NAV returned 4.3% , outperforming the Dow Jones World Technology Index return of 2.8%. In US dollar terms, the portfolio gained 4.8%. During the month, stock selection contributed to relative performance, and industry allocation […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment

    Close

    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm

    Email: customerservices@moneymarketing.com