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Offices are divided over stakeholder ring-fencing

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&#39 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.”

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