Private Investor: Standard Life windfall is small but irresistible

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The Independent Online

A few years ago, I started a small with-profits savings policy with Standard Life. Most of the motivation for doing so, I must admit, was the possibility that one day I might be the lucky beneficiary of a windfall from demutualisation. The other part of the motivation was just that I'd had very little exposure to with-profits policies and I thought that, even though their reputation was at rock bottom, it might not be so bad to risk all of £10 a month in one.

I was, thus, a member of Standard Life. Unlike most of my fellow owners of the business, however, I always tried to take some interest in the company. So I always read the mailings (not all of them, obviously, just the juicier bits about how much the board was paying itself) and voted on the resolutions.

When the last demutualisation proposal for Standard Life came up in 2000, I think I voted against it, because I thought that the then average windfall of £6,000 was not adequate for most of my fellow members. I suppose I thought that the business was worth more. The proposal, which was opposed by the board, was voted down anyway, so that opportunity went for good. The members were cheated out of what would have been a handsome compensation for the loss of their membership rights and their part in building a successful business.

So, we members were wrong, with hindsight, to forgo the windfall. The subsequent turn of events at the company and the stock market's sharp correction in the early years of this decade now mean an average prospective windfall payment of, say, £1,000 to £2,000 if the proposal goes through.

The huge bundle of documents relating to the vote has arrived and I notice that members with very small investments (like me) will do relatively well, with the minimum payment to members being £490, or roughly four years' premiums on my little policy. I'll also get an additional payment on top of that, as will other members, but I should think that mine will be tiny because that variable amount is related to length of membership and size of policy. Some members should get tens of thousands of pounds from the move to the stock market: less than they would have got a while ago.

This time, I will vote yes to demutualisation, however, mainly from fear of the future. Rationally, I would have thought that delaying the move might give the society more time to recover from its recent travails and achieve a better market valuation. Yet there is no guarantee of that. The membership is being offered a bird in the hand and no one should be surprised that we are taking it.

The other reason that I'll be voting yes is that I think that a part of the trouble that befell Standard Life and, much worse, Equitable Life, was down to the lack of transparency and accountability at mutuals compared with firms quoted on the stock market.

For major quoted plcs such as Prudential, Aviva or Legal & General, every little decision is scrutinised by an army of analysts and financial journalists, and managers are answerable to them as much as shareholders. Would the Equitable disaster have happened if it had been quoted?

The next question we members need to answer is whether we should take up the opportunity to buy extra shares at preferential rates in the new Standard Life plc.

Given the rate of consolidation in the financial services industry and the level of foreign interest in taking over smaller British players (usually demutualised concerns such as Abbey National and Alliance & Leicester), it would seem that, depending on the discount, that shouldn't be too bad a bet. Again, if it means a few quid extra for the society's members then that must be all to the good.

So I shall vote yes and I shall buy extra shares, and I think that I shall keep my with-profits policy going as well. How's that for a vote of confidence in Standard Life?

s.ogrady@independent.co.uk

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