The Courier & Advertiser (Perth and Perthshire Edition)
Probe into 30m financial policies
THE CITY watchdog has confirmed plans for an inquiry into 30 million financial policies sold between the 1970s and the turn of the millennium amid fears over “rip off ” charges and sub-standard service.
The Financial Conduct Authority (FCA) said it was investigating policies worth around £150 billion, sending shares in insurance firms slumping into the red once more after a torrid past week for the sector.
It will launch the investigation in the summer, scrutinising the treatment of customers who took out products such as private pensions, endowments, investment bonds and life insurance over a 30-year period.
The FCA — which will unveil further details in its annual business plan for the new financial year on Monday — is particularly concerned that many loyal customers of these older policies, many of which are no longer being contributed to, are not getting the same service as new customers and are locked in with high exit penalties preventing them from switching.
The move is a fresh blow for the industry just a week after the Chancellor gave pensioners the freedom to draw down as much or as little of their pension pot as they want, removing the need to buy an annuity.
And it follows a pledge by Pensions Minister Steve Webb to launch a “full frontal assault” on pension schemes giving poor value as he announced that a 0.75% cap will be imposed on charges from April next year.
FTSE 100 Index listed Friends Life insurer Resolution, which was set up in 2008 to consolidate the life insurance industry and is a major manager of closed funds, slumped as much as 13%, while Aviva fell 8%, Legal & General dropped 7% and Prudential declined 5%.
Phoenix Holdings, which has five million policyholders and is the UK’s largest consolidator of closed life assurance funds, tumbled 15% in the FTSE 250 Index.
The latest probe comes as the FCA said it feared there was unfairness whereby some insurers use the returns from so-called “zombie” funds — which are shut to new customers and often neglected by existing clients — to pay bills from other parts of their businesses.
It is thought the FCA could consider banning exit fees on old policies, or asking firms to move customers to better products, increasing investment in the management of old funds, or cutting fees.
Clive Adamson, director of supervision at the FCA, said: “We want to find out how closed-book products are being serviced by insurance companies, as we are concerned insurers are allocating an unfair amount of overheads to historic funds.
“As firms cut prices and create new products, there is a danger that customers with older contracts are forgotten.
“We want to ensure they get a fair deal,” he said.
“As part of the review we will collect information to establish whether we need to intervene on exit charges.”
The regulator is also concerned some of these products are no longer suitable for policyholders, but that regular checks are not being provided.