Standard Life rules out £100m with-profits fund

Published on Monday 19 May 2008 22:14

STANDARD Life has rejected a call to divert £100 million a year from its profits to fund a decade-long programme to fill the firm's endowment policy "black hole".

The plea to bolster the fund, set aside to cover shortfalls in with-profits mortgage endowments, came at the company's annual general meeting in Edinburgh yesterday.

Alastair McClelland, a Standard Life shareholder, used the AGM to demand that the company put 100m a year over ten years into the firm's "with-profits fund".

McClelland, who revealed later that he had an endowment mortgage with Standard Life which will not produce enough to repay his home loan, said he and other shareholders would support taking the extra money out of annual profits.

Responding to the call, Standard Life chairman Gerry Grimstone promised the AGM that he would "think about that", but he effectively ruled out the move.

Grimstone argued that the problems with with-profits policies were a legacy of the company's mutual past.

He told the meeting, attended by fewer than 80 shareholders, that when the company was floated, a new group of investors had come forward.

Grimstone added: "This was new money coming into the company. Not a penny of that was old money. They (investors] expect a return on that money. That's the money we are using to build the company."

Earlier, Grimstone told the AGM: "It is a sad fact, almost a brutal point to make, but there is not enough money to go around to deal with all of these things.

Chief executive Sandy Crombie explained in his presentation that the fund set up to pay out on with-profits mortgages and pensions was "totally separate from shareholders' funds".

Unlike other companies, Standard Life did not give any of the investment returns earned by the with-profits funds to shareholders, Crombie said.

He told the AGM that the average investment return for the year on maturing endowment plans was 10 per cent.

Crombie added: "The vast majority of people who work for Standard Life, worked for it when it was a mutual. We have not forgotten where we came from."

McClelland, from Loughborough, said after the meeting that the response from the board had been "politically correct".

And he warned that he would consider setting up a shareholders group to try to force a vote on his idea at future AGMs.

The problem has its roots in a promise made by Standard Life in 2000 to meet any shortfall policyholders faced on their endowment policies.

However, when the company got into solvency problems, the promise was changed in 2004 to a guarantee of paying only a proportion of shortfalls.

According to Standard Life, policyholders have been told they will receive between 40 to 60 per cent of the shortfall.

WHAT'S NEXT?

STANDARD Life's chairman has hinted that the firm's chief executive is set to continue to lead the business beyond his 60th birthday, next February.

Gerry Grimstone revealed that Sandy Crombie has been "irked" over people "writing his obituary" from the age of 57.

Grimstone praised Crombie's leadership and promised that the firm's board was "completely on top" of succession planning.

He added: "I see the dates themselves as being of no significance whatever but any board has to look to the future"