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; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

News
i100
Arts and Entertainment
Billie Piper as Brona in Penny Dreadful
tvReview: It’s business as usual in Victorian London. Let’s hope that changes as we get further into the new series spoiler alert
Life and Style
A nurse tends to a recovering patient on a general ward at The Queen Elizabeth Hospital in Birmingham
health
News
science
Arts and Entertainment
No Offence
tvReview: No Offence has characters who are larger than life and yet somehow completely true to life at the same time spoiler alert
News
Chuck Norris pictured in 1996
people
Arts and Entertainment
Sarah Lucas, I SCREAM DADDIO, Installation View, British Pavilion 2015
artWhy Sarah Lucas is the perfect choice to represent British art at the Venice Biennale
News
A voter placing a ballot paper in the box at a polling station
i100
News
people
Arts and Entertainment
The Queen (Kristin Scott Thomas) in The Audience
theatreReview: Stephen Daldry's direction is crisp in perfectly-timed revival
Sport
football
Finacial products from our partners
Property search
  • Get to the point
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

    SThree: Trainee Recruitment Consultant - Swiss Banking and Finance

    £20000 - £25000 per annum + Uncapped commission: SThree: Can you speak German,...

    Ashdown Group: Marketing Executive - 6 month FTC - Central London

    £25000 - £30000 per annum + benefits: Ashdown Group: An exciting opportunity f...

    Ashdown Group: Junior Project Manager (website, web application) - Agile

    £215 per day: Ashdown Group: Junior Project Manager (website, web application ...

    Guru Careers: Software Engineer / Software Developer

    £40-50K: Guru Careers: We are seeking an experienced Software Engineer / Softw...

    Day In a Page

    General Election 2015: Ed Miliband's unlikely journey from hapless geek to heart-throb

    Miliband's unlikely journey from hapless geek to heart-throb

    He was meant to be Labour's biggest handicap - but has become almost an asset
    General Election 2015: A guide to the smaller parties, from the the National Health Action Party to the Church of the Militant Elvis Party

    On the margins

    From Militant Elvis to Women's Equality: a guide to the underdogs standing in the election
    Amr Darrag: Ex-Muslim Brotherhood minister in exile still believes Egypt's military regime can be replaced with 'moderate' Islamic rule

    'This is the battle of young Egypt for the future of our country'

    Ex-Muslim Brotherhood minister Amr Darrag still believes the opposition can rid Egypt of its military regime and replace it with 'moderate' Islamic rule, he tells Robert Fisk
    Why patients must rely less on doctors: Improving our own health is the 'blockbuster drug of the century'

    Why patients must rely less on doctors

    Improving our own health is the 'blockbuster drug of the century'
    Sarah Lucas is the perfect artist to represent Britain at the Venice Biennale

    Flesh in Venice

    Sarah Lucas has filled the British pavilion at the Venice Biennale with slinky cats and casts of her female friends' private parts. It makes you proud to be a woman, says Karen Wright
    11 best anti-ageing day creams

    11 best anti-ageing day creams

    Slow down the ageing process with one of these high-performance, hardworking anti-agers
    Juventus 2 Real Madrid 1: Five things we learnt, including Iker Casillas is past it and Carlos Tevez remains effective

    Juventus vs Real Madrid

    Five things we learnt from the Italian's Champions League first leg win over the Spanish giants
    Ashes 2015: Test series looks a lost cause for England... whoever takes over as ECB director of cricket

    Ashes series looks a lost cause for England...

    Whoever takes over as ECB director of cricket, says Stephen Brenkley
    Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

    Fishing is on Nigel Farage's mind

    Ukip leader casts a line to the disaffected
    Who is bombing whom in the Middle East? It's amazing they don't all hit each other

    Who is bombing whom in the Middle East?

    Robert Fisk untangles the countries and factions
    China's influence on fashion: At the top of the game both creatively and commercially

    China's influence on fashion

    At the top of the game both creatively and commercially
    Lord O’Donnell: Former cabinet secretary on the election and life away from the levers of power

    The man known as GOD has a reputation for getting the job done

    Lord O'Donnell's three principles of rule
    Rainbow shades: It's all bright on the night

    Rainbow shades

    It's all bright on the night
    'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

    Bread from heaven

    Dutch survivors thank RAF for World War II drop that saved millions
    Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

    How 'the Axe' helped Labour

    UK will be 'run for the wealthy and powerful' if Tories retain power