The industry regulator, the Financial Services Authority, has unveiled new plans to increase the transparency of with profits funds. They also plan to make directors of these firms personally responsible for decisions made on behalf of their firms.
In brief, policyholders will be able to see what decisions the company makes regarding the fund in terms of what to pay out and what to hold back. Companies will be expected to explain their investment strategy and the differences between policyholder and shareholder interests. Also, firms will be expected to certify that they have complied with these new rules.
Our View
These changes will become effective next year and will make it clearer for policyholders to see just how their with profits fund works. This is welcome news because until now there has always been a with profits 'black hole'. Policyholders have never known how well or badly their fund performed and only got a notice showing how much had been paid to them in bonuses.
By making the changes, policyholders will see whether or not they are getting good value for money and how bonuses and reserves are calculated.