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With-profits may get a late reprieve

With-profits funds under stakeholder are set for a last-minute reprieve following negotiations between life offices and the Government.

But providers may face a new cost burden as the Government forces life offices to calculate stakeholder pension charges on a daily basis as with mortgages.

In a meeting with the ABI and the Faculty and Institute of Actuaries in July, the Department of Social Security agreed to review its stance on with-profits funds within stakeholder pensions.

The DSS now says that, as long as stakeholder members of a with-pro fits fund are accounted for separately by the provider in a sub-fund, it will consider allowing existing with-profits funds to be used.

Under existing stakeholder regulations, with-profits funds are allowed but only if a new ring-fenced fund is set up preventing cross-subsidisation between stakeholder and existing funds. This would, product providers argued, have prevented them smoothing returns.

The ABI says it is encouraged by the recent discussion and is continuing talks with the DSS to ensure stakeholder regulations are clarified for their members.

One product provider says: “It definitely seems like the DSS is saying with-profits funds do not have to be completely separate. We would want to see the detail. This does not necessarily open the door to any with-profits to be available through stakeholder.”

Another provider says: “It is good news if the DSS does reconsider ring- fencing as that will bring with-profits a step closer for stakeholder pensions.”

A DSS spokesman says: “There will be no fundamental changes to with-profits. We have laid out the rules and it is up to the industry. The industry has raised some concerns and we are considering these points to see if any changes need to be made.”

The ABI and the actuaries have also expressed concern over moves by the DSS to calculate charges on a daily basis, fearing this will lead to greater confusion among consu- mers and higher costs for insurers.

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