Roy Whitman, an accountant who has a policy with the society, called the move 'diabolical' and said the compensation fund should have been organised earlier so that the burden could be spread among more investors. People who have redeemed their policies since the beginning of this year - more than 3,000 - have escaped the payment, and cannot be called on to contribute.
The society says that it was advised six months ago to consider raising the levy but that it had not been practical to do so before now. The levy was raised on 1 August, when a pounds 10m fund was set aside after unit prices in investors' funds were cut by 12 per cent. Investors were informed this week.
The money has been deposited in a Royal Bank of Scotland account, to be held in trust until the outcome of a court case, scheduled for 21 September or soon after. The court will be asked to rule on two problems that affect thousands of the society's policyholders and which may result in compensation payments.
There are doubts over the tax- exempt status of about 7,000 policies funded by lump sums from policyholders rather than regular premiums. Thousands more policies are affected by the fall in the value of property investments in the society's Capital Secure Fund. The society started investing in property about five years ago and it has emerged that the terms of many of the policies excluded property investment.
The problems came to light after a number of new managers joined the society.
L&Y says the pounds 10m set aside from policyholders' funds for compensation represents the maximum possible bill.
Policyholders have been told that if there is any surplus after the compensation is finally worked out, this will be refunded. However, the society says it cannot give the same guarantee to people who redeem maturing policies before the problems are resolved.
Bernard White, L&Y's treasurer, said the raising of the compensation fund had been put off in the hope that a court hearing in July would resolve the whole issue. However, when it became clear the hearing would not take place in July L&Y had to consider the levy again ahead of another rush of redemptions due in September and October. If investors had been warned in advance there might have been a rush to redeem, increasing the burden on those who remained.Reuse content