At the committee’s hearing on inherited estates last week, McFall asked Norwich Union chief executive Mark Hodges and Prudential chief executive Nick Prettejohn to justify why the product was worthwhile, given that the providers can dip into the inherited estates.
He said: “It seems the cards are stacked in the firm’s favour and if we leave aside the reattribution process and just consider what normally happens to the inherited estate, you can do the following – you can underwrite new business, you can pay shareholder tax, you can pay misselling costs and indeed you can support the staff pension fund.
“The question arises, what safeguards are there for policyholders? Why would anybody want to invest in a product where part of the fund that might be distributed to them could be raided at any time by those who are trusted to invest that money for them?”
Prudential admitted it had used £1.6bn of its fund to pay misselling compensation. Norwich Union said £183m of its fund had already been used to pay misselling costs and another £80m had been set aside for future compensation.
At the evidence session two weeks ago, FSA chief executive Hector Sants said the regulator was “looking at things in the round” when it came to inherited estates and last week McFall suggested, in doing this, it was not satisfactorily focusing on specific issues.
McFall said the FSA seemed to be dragging its feet and queried whether with-profits committees could stand up to shareholders. He said: “It seems to me the FSA is sitting about and actually looking at things in the round and not treating things as they should. The with-profits committee exists to protect the interests of policyholders in general. The question in my mind is how much of a robust challenge do they offer?”