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Outside edge

I just know that opposite this page, someone will be saying that with-profits was, is and always will be wonderful and that nothing else in the world will ever quite capture those special places in the hearts and wallets of Mr and Mrs UK that are reserved in perpetuity for their pet actuary.

Worse still, the ABI might be there, trumpeting again what marvellous value with-profits has delivered and how it has comfortably outpaced the best of the unit trusts.

Now I am no great fan of Sandler. I cannot take seriously this line about the Angel of the Treasury appointing someone independent to take a view of a subject.

Oh, please – the Government will appoint someone who can be relied upon to come up with the answer they first thought of.

Did anyone ever think that Wanless would conclude that funding the NHS out of general taxation was cockeyed from the outset and is now totally barmy?

Thus, Sandler has come up with more 1 per cents, aiming to capitalise on the stupendous success of stakeholder pensions.

The report is not half-baked. It never got through the door of the kitchen, and if it had it would not have been able to find the oven.

It reeks, like CP 121, of committee drafting and the ritual insertion of the standard drivel clauses about social exclusion. Poor people cannot afford Ferrari motor cars. All right thinking people should roundly condemn the dastardly Italians for excluding our poor people.

But Sandler does land some near-fatal blows on the corpse of what we all came to know and love as with-profits, even if we had no idea how it worked.

The performance figures are distorted because the degree of cross-subsidy from the three policyholders who did not stay the course to the one who did is not disclosed. Gotcha.

Then the review goes on to design a “with-profits” fund with an explicit smoothing account with “smoothing required to be neutral over the long run” and no surrender penalties.

At last, the product we have always wanted, with the upside of the equity market and the downside of a cash deposit. All for 1 per cent. Fantastic.

Surely, our life industry, which embraced stakeholder, will go a bundle on this one.

Traditional with-profits – the real thing to we aficionados – died because people wanted guarantees but did not want to pay for them.

Unitised with-profits sounded similar and needed less capital but it still involved guarantees.

With-profits has no future because there are two ways to turn an actuary a kind of pale, bilious green around the gills. The first way involves paint, spray guns, trouble and mess. The second is a breeze. One – spot your quarry. Two – approach it quietly from the rear. Three – whisper just one word in its ear, left or right, it does not matter, “guarantee”. Job done.

The life industry, unlike Governments, is not allowed to break promises willy-nilly. The financial services industry may have done some potty things but is still smart enough to know that any sort of guarantee in today&#39s uncertain world costs more than anyone will pay for it.

Thankfully, creativity knows no bounds. We will develop a product that might pass as with-profits in an identity parade but only if the parade is held in dense fog and the picker is brought to the scene unconscious.

It is a smoothed managed fund. And we will call it with-profits. Because we have signed the pledge to stop misleading our customers.

Cynical? Who? Me? Never.

Graeme Laws is a business consultant

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