Standard Life: the vote must be yes, but that's just the beginning

Policyholders will have to back the Scottish insurer's plans, but they don't have to stay with it, says James Daley

More than 2.4m Standard Life customers will finally find out how much they stand to make from the insurer's proposed demutualisation later this month, as the group plays its trump card in its bid to secure policyholders' backing for the transformation.

With the management requiring the approval of 75 per cent of its members to push ahead, it hopes the promise of cash will help convince the floating voters to come on board on the big day, scheduled for 31 May.

Although the Scottish insurer has been careful not to give too much away, analysts estimate that average share distributions will be worth in the range of £500 to £1,000. The exact details will depend on how long you have been a customer with the company and the size of your policy.

To qualify for the share distribution, you must have been a Standard Life member on 31 March 2004. Those who have been with the company for many years and now have sizeable policies could be in for windfalls worth several thousand pounds. But even with the windfalls on offer, should you vote yes to Standard Life's demutualisation? A report from a cross-party group of MPs, published last month, concluded that, historically, mutual companies have served their customers much better than their stock-market-quoted rivals.

It warned that windfall payments following previous demutualisations have generally been scant compensation for savers and investors for the subsequent decline in returns and customer service standards.

The explanation seems obvious. Publicly quoted companies have a duty to shareholders as well as customers, and the interests of the two must be balanced. As a result, the MPs warned demutualised companies' charges have a tendency to creep up over time, while savings rates and loan rates are often only competitive for the newest customers.

Mutuals, however, can put their customers first, which should in theory enable management to survive on slimmer profit margins, with more money left over for policyholders.

Nationwide, the UK's largest building society and one of the top three biggest mutuals in the country, operates with a profit margin of just over 1 per cent on its lending and savings balances. This compares with margins of as high as 2.75 per cent at Lloyds TSB, and 2.28 per cent at HSBC.

The MPs' report found that customers could lose the value of their windfall in higher charges and less competitive rates within four years of demutualisation. It warned that mutual customers tended to lack "a full understanding of what they were voting for" at decision time.

Some plcs have argued they run more efficiently, wiping out the gains of mutuality. And in the case of Standard Life, the insurer has not had much choice about maintaining its mutuality.

Solvency regulations that came into force a couple of years ago require insurers to keep much more money aside for every policy that they sell. As a mutual, Standard Life cannot raise money nearly as easily as a public company, and has struggled to meet the regulator's solvency requirements for its existing business, let alone find enough money to back any substantial growth in new business.

Although many of the company's senior management battled passionately to keep the company's status only six years ago, life for mutual insurance companies is now becoming increasingly challenging. Ned Cazalet, a life insurance analyst, says: "If it doesn't demutualise, it will have a lot of difficulties. I can't think of one reason why you can say it would not be sensible to demutualise."

Although the pressures of being a publicly listed company may well mean that customers see charges rise and service deteriorate over the next few years, things could be much worse for members if Standard Life maintains its mutual status.

Tom McPhail, head of pensions research for Hargreaves Lansdown, the financial adviser, says: "I like mutuality and I am a Standard Life policyholder. But it's really not in the interests of policyholders for Standard to remain a mutual. The best course is to take the money from demutualisation, then decide whether you want to remain a customer after that."

Should I stay or should I go?

* One option for Standard Life policyholders is: vote yes, take the shares then go elsewhere. But if you switch out of a with-profits fund, you're likely to be subject to a market value reduction (MVR).

* Like many insurers, Standard Life charges up to 25 per cent for switching out of your policy before maturity. Not all policies are affected though, so check.

* Returns across with-profits funds have varied dramatically over the past few years. If you put £100 a month into Scottish Widows' with-profits pension for the past 20 years, you would now have a fund worth £48,000. Savers with Liverpool Victoria would have almost £90,000. Liverpool Victoria is still mutual, Scottish Widows demutualised five years ago, though there is no automatic correlation between high returns and mutuality.

* Many advisers believe with-profits products have had their day. If you're thinking of switching, take professional advice. To find an adviser, visit www.unbiased.co.uk.

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

PROMOTED VIDEO
Arts and Entertainment
From Mean Girls to Mamet: Lindsay Lohan
theatre
Sport
Nathaniel Clyne (No 2) drives home his side's second goal past Arsenal’s David Ospina at the Emirates
footballArsenal 1 Southampton 2: Arsène Wenger pays the price for picking reserve side in Capital One Cup
News
Mike Tyson has led an appalling and sad life, but are we not a country that gives second chances?
peopleFormer boxer 'watched over' crash victim until ambulance arrived
Arts and Entertainment
Geena Davis, founder and chair of the Geena Davis Institute on Gender in Media
tv
News
i100
Travel
travelGallery And yes, it is indoors
Life and Style
tech
Arts and Entertainment
The Tiger Who Came To Tea
booksJudith Kerr on what inspired her latest animal intruder - 'The Crocodile Under the Bed'
News
i100
Arts and Entertainment
British actor Idris Elba is also a DJ and rapper who played Ibiza last summer
film
News
Alan Bennett criticised the lack of fairness in British society encapsulated by the private school system
peopleBut he does like Stewart Lee
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    IT Project manager - Web E-commerce

    £65000 Per Annum Benefits + bonus: Clearwater People Solutions Ltd: If you are...

    Trainee / Experienced Recruitment Consultants

    £20000 - £25000 per annum + OTE £40,000: SThree: SThree are a global FTSE 250 ...

    Trainee Recruitment Consultant - Soho

    £20000 - £25000 per annum + OTE £40000: SThree: As a Recruitment Consultant, y...

    Trainee Recruitment Consultants - Banking & Finance

    £20000 - £25000 per annum + OTE £40,000: SThree: SThree Group have been well e...

    Day In a Page

    Syria air strikes: ‘Peace President’ Obama had to take stronger action against Isis after beheadings

    Robert Fisk on Syria air strikes

    ‘Peace President’ Obama had to take stronger action against Isis after beheadings
    Will Lindsay Lohan's West End debut be a turnaround moment for her career?

    Lindsay Lohan's West End debut

    Will this be a turnaround moment for her career?
    'The Crocodile Under the Bed': Judith Kerr's follow-up to 'The Tiger Who Came to Tea'

    The follow-up to 'The Tiger Who Came to Tea'

    Judith Kerr on what inspired her latest animal intruder - 'The Crocodile Under the Bed' - which has taken 46 years to get into print
    BBC Television Centre: A nostalgic wander through the sets, studios and ghosts of programmes past

    BBC Television Centre

    A nostalgic wander through the sets, studios and ghosts of programmes past
    Lonesome George: Custody battle in Galapagos over tortoise remains

    My George!

    Custody battle in Galapagos over tortoise remains
    10 best rucksacks for backpackers

    Pack up your troubles: 10 best rucksacks for backpackers

    Off on an intrepid trip? Experts from student trip specialists Real Gap and Quest Overseas recommend luggage for travellers on the move
    Secret politics of the weekly shop

    The politics of the weekly shop

    New app reveals political leanings of food companies
    Beam me up, Scottie!

    Beam me up, Scottie!

    Celebrity Trekkies from Alex Salmond to Barack Obama
    Beware Wet Paint: The ICA's latest ambitious exhibition

    Beware Wet Paint

    The ICA's latest ambitious exhibition
    Pink Floyd have produced some of rock's greatest ever album covers

    Pink Floyd have produced some of rock's greatest ever album covers

    Can 'The Endless River' carry on the tradition?
    Sanctuary for the suicidal

    Sanctuary for the suicidal

    One mother's story of how London charity Maytree helped her son with his depression
    A roller-coaster tale from the 'voice of a generation'

    Not That Kind of Girl:

    A roller-coaster tale from 'voice of a generation' Lena Dunham
    London is not bedlam or a cradle of vice. In fact it, as much as anywhere, deserves independence

    London is not bedlam or a cradle of vice

    In fact it, as much as anywhere, deserves independence
    Vivienne Westwood 'didn’t want' relationship with Malcolm McLaren

    Vivienne Westwood 'didn’t want' relationship with McLaren

    Designer 'felt pressured' into going out with Sex Pistols manager
    Jourdan Dunn: Model mother

    Model mother

    Jordan Dunn became one of the best-paid models in the world