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Which? slams with-profits penalties

25 October 2008

As Norwich Union and Friends Provident introduced Market Value Reductions (MVRs) on over 1.4 million* with-profits policies, Which? personal finance campaigner, Dominic Lindley, says:

"These penalties will come as a bitter blow to with-profits policyholders. There is no transparency about how they are calculated and many policyholders will not trust the company to apply them fairly.

"This could penalise those Norwich Union policyholders who had only stuck with the fund because of the promise of payouts from the reattribution and special bonuses.

"It may feed the impression amongst policyholders that when it comes to with-profits, what companies give with one hand they take with the other.

“It is essential that the FSA listens to the recommendations of the Treasury Committee and launches a comprehensive review of its regulation of with-profits funds.

"Anyone thinking of cashing in their policy should immediately contact their provider to find out when they would next be able to cash-in their policy without being subject to an MVR and consult an Independent Financial Adviser.”

Notes to Editor

 

Market Value Reductions (MVRs) are the penalties imposed by firms on policyholders who cash-in their with-profits policy. Firms claim that an MVR is normally imposed when investment returns have been poor to ensure that policyholders do not leave the fund with more than they are entitled to.

Some firms allow you to cash in policies early on certain dates without incurring a penalty. Known as MVR-free dates, they usually occur five or ten years after the policy was taken out. If it is a pension policy then there may be an MVR-free date when the consumer reaches their pre-selected retirement age. Some policies also allow small regular withdrawals which are not subject to an MVR. Consumers should check their policy to see if it includes any of these provisions.

*This week Norwich Union introduced MVRs of between 13% and 22% affecting around 1.2 million policyholders and Friends Provident introduced MVRs of between 5% and 14% affecting around 250,000 policyholders.

The Treasury Committee will publish the FSA’s response to the Committee’s report on Inherited estates in with-profits funds on Monday 27 October at 11am.