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Wp rules aim to make costs and penalties clear

The FSA has finalised the first set of rules designed to regulate the transparency and accountability of the with-profits sector.

Life offices will be made to highlight the costs charged when managing the fund, penalties levied to shareholders who surrender their policies early and the need for funds to be managed with the objective of ensuring that maturity payouts fall within a target range set for the fund.

But providers have objected to sending a code of practice to existing policyholders immediately the rules take effect. Instead, the new code will be included in annual statements and will be highlighted on product providers’ websites.

The FSA says it will issue a further consultation paper finetuning its new regulations if solutions to teething problems cannot be found.

One unnamed provider called for MVRs on unitised with-profits policies to be classed as negative terminal bonuses for the purpose of calculating amounts of distributions to policyholders and shareholders. The FSA says it will look at incorporating this before proposals are implemented on June 30 on a transitional basis, becoming mandatory at the end of the year.

Norwich Union chief actuary Mike Urmston commends the change in FSA proposals. He says: “We think that incorporating the required information into existing policyholder communications is a workable solution and strikes a good balance.

“We think that the time scale suggested for doing this is entirely realistic.”

FSA sector leader for insurance David Strachan says: “This work by the FSA will underpin the obligation of senior management of with-profits firms to treat their policyholders fairly and make the operation of funds easier to understand. This, in turn, should restore confidence in the with-profits sector and wider insurance industry.”

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