Policyholders with life insurance companies may have missed out on £2 billion.
That is the claim from one former actuary that has now prompted a member of the Financial Conduct Authority to say he will look into the issue.
According to a Financial Times
report, Chris O’Brien, a former director of the Centre for Risk and Insurance Studies at Nottingham Business School, has stated that some life insurance companies are not paying out enough on pensions and that the FCA has not been taking sufficient action.
O’Brien claims that the problem has appeared because life insurers typically pay tax on the profits that shareholders make – but in the case of many with-profit businesses it is the policyholders who bear the burden. This, he claims, is down to an FCA rule which allows companies to pay tax from the surplus in the fund – even when around 90% of that surplus is usually allocated to pensions and life policyholders. This in turn means that their bonuses are lower than they should be.
Speaking to the publication, Mr O’Brien explained that since 1990, when tax rules changed, money has gone to shareholders instead of policyholders – and that policyholders may have missed out on as much as £2 billion. He has called on the FCA to act on what he describes as a “major customer detriment”.
In response, Christopher Woolard, director of strategy and competition at the FCA, told the publication that the stance taken relates to a range of historic with-profit policies and so with newer contracts this issue does not apply.
However, he did state: “What I will do though is go away and look at the historic correspondence there has been on this and look again at the issues you raise around our policies and our rules.”
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