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Trade bodies attack FSA’s WP proposals

Trade bodies are warning that the FSA’s amended with-profits proposals are grossly unfair and will punish investors who hold policies until maturity.

The Association of Friendly Societies and the Association of Policy Market Makers say the majority of with-profits policies are still held until maturity and these savers will be adversely affected.

In its CP04/14, which is a further consultation to CP207 – Treating With-profits Policyholders Fairly – the FSA calls for surrender payouts to be at least as good as asset shares.

APMM chairman Brian Goldstein stresses that such a move could potentially res-ult in it being more attractive to surrender a policy than hold it to maturity which he says would fly in the face of the explicit aims of the consultation.

Goldstein says the FSA is mistaken in its view that most policies are surrendered. He says the APMM’s data from 18 with-profits firms show that 15 firms had more policies mature than were surrendered in 2003.

AFS secretary Doug Thow says the FSA’s proposal would mean that providers would have to build greater reserves which would temper returns as with-profits funds would invest less in equities.

Goldstein says: “The only beneficiaries of this will be the minority – those who surrender early – and mortgage savers and pensioners, who cannot surrender if they want to, will be the hardest hit.”

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