| Press Article
The Guardian, Saturday
September 9 2000
Demutualisation bonanzas could prove illusory for hundreds of thousands of
Scottish Provident policyholders. They should look carefully at
their documentation before planning how to spend the windfalls promised
following Abbey National's swallowing up of the Edinburgh life insurer.
They will also need to check just when their policy was issued - the rules
for some older policies are more generous than for those issued over the
past four and a half years.
After being "in play" for some months, Scottish Provident finally
threw in the mutuality towel this week when it said it was falling under
the Abbey National umbrella where Glasgow-based life company Scottish
Mutual has resided since 1992.
Continuing as a mutual made little sense, it believes, especially as it
now specialises in protection plans, such as life or critical illness
cover, rather than traditional with-profits business. And while it will
not publicly admit it, the other touted option - a stock market float -
would not have succeeded due to the firm's relatively small size.
Demutualising means policyholders lose out because they no longer own the
entire with-profits fund. It has to be shared with outside investors - in
this case Abbey National which will be paying £1.8bn for the life company.
In return for giving up their vote and part of their share in the
proceeds, the 325,000 with profits shareholders will end up with windfalls
averaging around £4,500 - near enough the eventual level paid out last
month by Scottish Widows and substantially ahead of the typical amount on
offer from pensions specialist NPI. They will also receive a further
£1,500 on average in "enhanced policy benefits" - although just how
holders will be made aware of this in these notoriously opaque funds is
With-profits policyholders include those with pension plans - where sales
to new investors stopped in 1997 - and endowment policies. Scottish
Provident endowments were sold to back mortgages by independent
The life insurance company is currently sending out review letters to
homebuyers. It says "an average number have a shortfall". Scottish
Provident stopped selling endowments late last year. According to
Money Management, returns on 25-year policies maturing this year were
The typical £4,500 payout may be improved - the Scottish Widows windfall
went up as actuaries refined their sums. And that average amount will vary
from a minimum £500 to a possible £100,000 plus for the very biggest
long-term pension plans.
A further 125,000 policyholders who have non-profits plans, such as unit
linked investments into both pension and endowment plans, are members but
will not lose financially when mutuality disappears.
Investors in these funds will receive a flat £500 irrespective of the size
of their holding. This is identical to the payout offered by Scottish
Widows to their unit linked and non-profit customers.
But around 350,000 Scottish Provident policyholders will get nothing. They
have no membership rights, although it is doubtful if this was ever
pointed out to them by the independent financial advisers (IFAs )who sell
all Scottish Provident plans.
The great majority of these - some 300,000 - have bought protection
policies such as life, income replacement, critical illness and medical
These have all been sold under the "Self Assurance" label. Scottish
Provident has been very successful in replacing pensions and endowment
sales with IFA based sales of protection - it is by far the biggest
supplier of these plans in the independent area.
But oddly anyone who bought and still holds a protection policy sold
before January 1996 counts as a member and will qualify for the flat £500
Around a further 40,000 policyholders are also excluded from the £2bn
payment bonanza. They are holders of plans bought from the offshore arm -
Scottish Provident International. This is legally a subsidiary of the
with-profits fund so they do not have membership rights whatever policies
Abbey National customers receive nothing, although shareholders could
profit if the deal lives up to the promise. Abbey's 15m account holders
could see cheaper life cover if Scottish Provident products are sold in
branches at the same price as sales through IFAs, and if sales of Aberdeen
unit trusts are routed through branches.
Aberdeen, which is 39% owned by Scottish Provident, is being sacked in
August 2002 as Scottish Provident's main fund manager in favour of the
Abbey National in-house team.
The timetable now points to a vote on demutualisation early next year -
probably at the end of January. Barring cataclysms, the result is a
foregone conclusion. This will be followed by a virtual rubber stamping at
the Court of Sessions in the summer.
With-profits policyholders will then be told exactly how much they stand
to make. And all windfalls will be paid out in autumn 2001.
association of friendly societies
CELEBRATION BONUS AT ROYAL LIVER
Liver Assurance, one of the country’s leading Friendly
Societies, has announced as part of its 1999
Bonus Declaration, a special bonus in celebration of its 150th
Anniversary which will be paid to all
many other financial services providers, Royal Liver has restructured
its reversionary bonus rates this year to
reflect difficult market conditions with interest rates at their lowest
levels for many years.
McCaul, Royal Liver’s Chief Executive, commented
“We are extremely pleased to be able
to reward policyholders with this special 150th Anniversary Bonus, in
addition to increasing or maintaining our
terminal bonus rates. As a Friendly Society, we work for our
members, not shareholders, and this announcement reinforces our
commitment to offer them good value for money
and a fuller future”.
many organisations cutting overall payouts significantly, this is a
major achievement for the Society. The 150th
Anniversary Bonus will effectively mean that the overall rates
declared to policyholders will remain the same as last year.
a result of the 1999 declaration, the Society’s Ordinary
Branch endowment plans will enjoy a
reversionary bonus of £30 per £1000 sum assured for
non-compound bonus policies and 2.5% for
compound versions. The 150th Anniversary Bonus will add £15
and 1% respectively to these values, bringing
the totals to £45 and 3.5%.
Society launched a highly flexible new-style personal pension plan
towards the end of 1998 and with-profits plan
holders will benefit from an annualised bonus value of 4% plus
1% ‘Anniversary’ rate, bringing the total to 5%.
practical terms, a typical 15 year endowment policy taken out on 1
January 1985, by a 30 year old male paying
£60 per month, will mature this year with a value of
£27,925. This equates to a
substantial growth of 158% on the total contributions
(£10,800) with all taxes paid.
Compared with a typical building society return of £15,033*
the Royal Liver plan clearly offers excellent
value for money.
on the special bonus and other developments at Royal Liver, Brian
McCaul said “This is an exciting
time for the Society which is successfully blending 150 years of
experience and tradition with major new initiatives
and a determination to ensure continued
success in the 21st Century.”