/ Money

With-profits funds – stop burning our money

Twenty pound note burning

We don’t think with-profits policies are a great investment, but there are still over 25 million of them in the UK, worth around £330 billion. But is the financial regulator doing enough to protect the policyholders?

Which? has been highly critical of the FSA’s regulation of the with-profits industry. We don’t think the current rules do enough to ensure that firms treat you fairly. Put simply – the regulation doesn’t guarantee that the funds are run in your best interests.

With-profits funds are a type of investment with a life assurance provider. The provider pools your money with other investors and if it performs well you should get an annual bonus each year, and you may get a ‘terminal’ bonus when it comes to an end.

Using your money to pay compensation

The problem is that certain companies have been using money from the fund to subsidise loss-making new business and pay the shareholders tax bills. When they mis-sold a product and had to pay compensation they just charged it to the fund. These practices provided about as much benefit to you as taking your money out into the street and burning it.

Even worse, in the weak regulatory environment, companies like AXA and Aviva have been able to get their hands on much more than their normal 10% share of the funds’ vast inherited estates. Although policyholders have seen a decade of poor returns, AXA shareholders have more than tripled their money by raiding the estate.

Who’s watching them?

With-profits committees are supposed to provide some independent judgement to the company about how the fund is run. But – a further problem for policyholders – these can contain members of the company’s board of directors. We believe these committees should contain more independent people – those who will fight for the fund to be run in your best interests.

The FSA is now proposing action to ensure firms quickly improve their operations, for example by making immediate changes to their committee arrangements, and will consider disciplinary action if firms do not address the concerns. However, these changes are opposed by the industry and there is a risk that responsibility for with-profits could be allocated to the Prudential Regulatory Authority which could lack the ability to ensure you are treated fairly.

Which? is working to ensure that policyholder interests are better protected and will carry on meeting with FSA and Government officials to press the case for change. We’re making progress and it’s clear that having policyholders make their views known really helped make the FSA and MPs take the issue more seriously.

Do you have a with-profits policy? What changes would you like to see to guarantee that you’re treated fairly?


Many years ago, our brittanic insurance rep persuaded us to “opt out” of serps, telling us that pension funds that had opted out, would receive bonus’ and grow much faster than state pensions.

Is this the kind of thing you are referring to?

I think this is somewhat like endowment mortgages – I know many people who found the payments didn’t actually pay the mortgage and had to sell their homes. I never did like open ended arrangements – My mortgage was slightly more expensive – it was fixed and safe. The same with my life assurance.

niall WALLACE says:
20 December 2012

I like WHICH comments above that these with profits policies are to be more regulated, but when ? What is current status.
I have 2 maturing policies bought and sold several times and now with Phoenix. Neither has produced a bonus for 10 years now. Enquiries on cash in produce values only half of the 20years of contributions. Enquiries on ¬paid up¬ produce vague statements of prorata benefits. There is a definate nil committment to any future annual or terminal bonuses SO HOW IS ONE TO MAKE ANY REASONABLY INFORMED DECISION on continuing to throw good money after bad in the hope of a decent terminal bonus. This nil committment to any future performance bonuses is in sharp contrast to the glowing performance forecasts at point of sale 20 years ago. It is clear that Companies and sales agents have taken there pound of flesh and left only the crumbs to client savers. Companies know that they are not going to sell any new policies to retiring policy holders of 20 plus years standing so they have no incentive to offer better payouts. YES WE ARE ALL TRAPPED by Governments, Companies and Commission Agents encouraging saving for the future and decent returns, but they have really only looked after themselves and stolen our money. When is something going to be done about it??