Standard to wind-up with-profits

Edinburgh-based life insurance and banking group, Standard Life has announced the effective closure of its £31 billion with-profits fund, and eventual wind-up once assets fell below £500 million, as part of the company's demutualisation process.

Standard Life sent documents to all its policyholders in April, which stated that it would close the fund to most types of new business and rename it the Heritage Fund, but a senior figure within the company denied that this meant it would be a closed fund.

"We are not closing the Heritage Fund, if members wish to make incremental increases to their policies they can, and if in the future we see new business opportunities that will benefit policyholders we will have the flexibility to take them," said John Gill, finance director at Standard Life's with-profits fund.

Gill said that, as yet, no decision had been taken on what would specifically constitute a new business opportunity.

Standard Life will start another fund that will be open to new business, but Gill conceded that he did not expect this to form a significant revenue stream for the company if the demutualisation process goes ahead - but stopped short of declaring the sector finished.

"I am reluctant to say that there won't be any new with-profits business, but the sector has been declining in the UK for sometime - indeed the falling interest in with-profits was one of the main reasons for starting the demutualisation process."

Standard Life's decision to award 100% of the returns from the funds to policyholders, rather than the 90:10 split with shareholders that is the industry standard may be viewed by some observers as amounting to another nail in the coffin of the UK with-profits concept.

But Youssef Ziai, analyst at London-based brokers, Williams de Broe, said that this analysis ignored the bigger picture. "There is more value to the company than simply its with-profits fund - its infrastructure and ability to generate new business are all highly valued by potential investors."

This view is backed up by Gill, who said that ring-fencing the fund and ensuring that policyholders receive all future returns was essential to maintaining policyholder interest in demutualisation.

"This isn't the standard industry approach to dividing with-profits funds, but we are the first company to demutualise in the long-term, and we are the first to do so since the introduction of the principles and practices of financial management by the Financial Services Authority (FSA, the UK regulator) in 2004, and I am certain that by giving policyholders 100% of the returns we are meeting their expectations."

Expectations for with-profits may not be high but Gill was optimistic that the new generation of long-term savings products will capture customers' interest. "People are looking for flexibility and control with their investments, and products which offer them the chance to easily reshape their investment strategy will be popular."