effects all insurance companies28 Mar 2014 12:35
Finance & Stock Market News
UPDATE 1-UK regulator to probe fairness of "zombie" savings pots
Fri, 28th Mar 2014 11:40
* Probe is third knock to savings sector in two weeks
* Policies written before 2000 will be inspected by FCA
* Shares in Resolution tumble 11 percent
* Some exit fees eat up half the pension pot (Adds background, more details on probe)
By Chris Vellacott and Huw Jones
LONDON, March 28 (Reuters) - Britain's financial watchdog is to investigate whether people locked into some 30 million pension and other types of savings plans sold by insurance firms in the 30 years after 1970 are treated fairly compared with new clients, a source familiar with the matter said on Friday.
These savings policies are sometimes described as "zombie funds", which are closed to new investors and are typically owned by elderly people who might have forgotten about them.
The Financial Conduct Authority is concerned that these savers are being treated as a captive market because of costly penalties for withdrawing early or stopping further payments which were built into these policies, written before 2000 when interest rates and expected returns were higher.
The FCA will outline the review into these 150 billion pounds ($249 billion) of savings in its annual business planto be published on Monday, the source said.
Shares in insurance groups such as Resolution, Aviva , Prudential, Standard Life and Legal & General tumbled on Friday morning after the Daily Telegraph newspaper said the probe could lead to the exit penalties being waived for some savers.
News of the investigation marks the third blow in two weeks for Britain's insurers as the authorities seek to encourage people to save for old age at a time when public coffers are stretched and people live longer.
Britain's finance minister George Osborne announced last week that retirees won't be forced to buy an annuity with their pension pots, the biggest shake-up in pensions in nearly a century.
Then on Thursday the government said annual management charges on workplace pension schemes that automatically enrol employees will be capped at 0.75 percent from April next year to "end rip-off pension charges".
The FCA review will start this summer and is due to be concluded by the end of the year, with one option being to ban so-called exit fees which, in extreme cases, eat up half the savings pot.
"Should investors be allowed to exit policies and look for a better deal the sector may be punished with large outflows of money from some zombie funds," Mike van Dulken, head of research at Accendo Markets, said.
There are 30 million such funds in existence, dating back to the 1970s, but the FCA will only look at a selection of them. ($1=0.6019 British pounds) (Reporting by Chris Vellacott and Huw Jones; Editing by Greg Mahlich
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