Life offices are split over the ring-fencing of stakeholder with-profits funds following clarification from the DSS that it wants only an accounting and not total separation of the assets.
The DSS is inviting the ABI to put forward a definition of ring-fencing in a move many life offices believe will make with-profits a viable investment under stakeholder.
The DSS has clarified it will not require the absolute separation of stakeholder sub-funds from existing with-profits funds. But life offices remain divided over whether this means with-profits have a viable future as stakeholder investments.
An ABI document obtained by Money Marketing shows the DSS has issued an invitation to the ABI to reword the definition of with-profits ring-fencing.
Some offices maintain the DSS is right to require an “accounting” ring-fence, believing this will allow some cross-subsidy of stakeholder with-profits funds in consumers' interests.
But others argue that not separating the assets renders the 1 per cent stakeholder charging cap meaningless. They believe they can offer stakeholder with-profits even with absolute ring-fencing.
Skandia head of pensions marketing Peter Jordan says: “It is bite the bullet time for the Government. It needs to accept that if you want a charging cap that works, you need separate funds or risk exposing assets to the prospect of additional shrinkage.”