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Policy holders must realise implications

The orphan assets that sit within with-profits funds have accumulated over a number of generations and represent millions of pounds.

Their purpose, in my mind, is to smooth investment ret urns, to underpin liabilities and to cope with unexpected events. In essence, they sit at the core of delivering what a with-profits policy is, both for current and future generations of policyholders.

The one issue which stands above all others in the current debate regarding orphan assets is that of ownership of those assets. I have no desire to debate the pros and cons of any life offices&#39 plans for the orphan assets that sit within their own with-profits funds – that is an issue for their boards.

If orphan assets are to be distributed, which may be in policyholders&#39 best interests over the short term, in prin ciple, they should be distributed for the benefit of current policyholders and not shareholders.

Further, they should not be distributed indirectly away from policyholders through enabling shareholders to acquire another business. If the shareholders believe the acquisition is in their interests they should pursue the transaction on their own account.

Attempts to debate the ownership of the orphan ass ets or action to divide them up are just not appropriate.

There is a point of principle here – it is the policyholders&#39 money. Only if a full and fair price is paid to policyholders for those assets should any re-distribution take place, and only if it is in their best long-term interests.

However, current policyholders should understand the consequences of selling those assets. This may wea ken the fund that supports their and future policyholders&#39 benefits.

Policyholders should be clear that they have shared in the benefit of the security those assets have provided. The assets are, in my mind, most fairly used by remaining in the fund and continuing to provide that benefit and to future policyholders too.

Policy holders need to satisfy themselves that a short-term win now is more valuable to them than the prospect of a longer-term, and potentially greater, gain.

I recognise that the whole issue and debate around orp han assets is extremely complex. This is not ultimately a question of ownership or apportionment between pol icyholders and shareholders.

The ownership of orphan assets rests clearly with pol icyholders. That is why I am against any attempt to place the assets out of their reach.

What this is about is trust – and life offices should be trusted to protect consumers&#39 long-term interests. For me, that is done well by preserving orphan assets in the fund, where they can be of benefit to all, current and future.

All I ask is that the debate concentrates on the fundamental issue of consumers&#39 long-term interests. There is a major role for IFAs to explain these issues to policyholders, who will require clear and independent advice.

I leave you with this thought – if the ownership of orphan assets is in doubt why should there be the need to ask policyholders to vote in favour of selling them? Simple. It is their money.

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