Investor confidence in Standard Life has been hit by the company's recent talks with the Financial Services Authority (FSA), the change in group chief executive and talk of demutualisation. Below, are answers to some of the questions that policyholders may have.
What's the problem?
To make with-profits funds more transparent and ensure firms can meet their commitments to policyholders in the future, the FSA, the City regulator, recently changed the rules on how companies calculate their financial strength.
In light of this, Standard Life found a significant divergence between the way it calculates its strength and the higher level of reserves now needed. It has commissioned a strategic review into the business to find a solution.
Will Standard Life go bust?
No. The company has assured the FSA that it continues to meet Companies Act solvency requirements. Although it intends to raise £750m of additional capital to fund future growth, it defends its "very strong" financial position.
Will it demutualise?
The strategic review will consider a stock market flotation as one way of raising capital. This is a U-turn from the stance taken by the board in 2000, when the call for demutualisation was strongly rejected. Although it has been a mutual since 1925, it looks as though the company has come to the end of that road.
What happens next?
Standard Life is setting aside increased reserves to cover guarantees on policies. The firm will also take steps to improve the way it calculates its financial strength, in line with the new requirements.
The FSA will review the impact on policyholders of the measures proposed by the company, and monitor the decisions made following the strategic review.
What does it mean for my policy?
There will be changes in the way pro-spective with-profits benefits are illustrated to policyholders. Some discretion- ary benefits will no longer be projected, even though you may still ultimately receive them. Instead, projections will include only normal benefit entitlements.
But the company also announced that this would have no impact on current surrender values, transfer values or payouts. It has already indicated that the declaration of annual bonuses on 29 January will be slightly lower. There will be no impact on unit-linked or non-with-profits policyholders.
What should I do now?
Don't panic. "It does appear Standard Life is not as strong as we previously thought, but that certainly does not mean another Equitable Life is in the offing," says Patrick Connolly at independent financial adviser John Scott & Partners. "The decisions being taken now are the right ones to ensure the viability of Standard Life." But while you shouldn't move your investments just yet, you should still monitor the situation.
Can I escape?
If you bought a policy after 16 November 2003, you will be allowed to get your money back, without penalty.
Should I buy a with-profits policy?
Not now; there is too much uncertainty over the firm's future. Wait until a clearer picture emerges in the next few weeks.
But won't I get a windfall?
Existing members may receive a payout if the firm demutualises, although this may be added to policies instead of a cash handout. New policyholders waive any entitlement to compensation if the company demutualises within three years.
What happens next?
Standard Life will write to policyholders in the next few weeks with details of the proposed changes. The strategic review should be completed by the summer.
Where can I get more details?
See www.standardlife.co.uk. John Scott & Partners has also set up a Standard Life Information Line on 08458 507508.
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