The FSA has told investment companies to be fair to their policy holders.
Tighter rules will be imposed on investment firms that offer with-profits policies to consumers.
Investment companies selling with-profits policies need to give consumers a better deal, according to the Financial Services Authority (FSA).
The FSA is planning to create a set of stricter rules concerning the way that firms manage their with-profits funds including the reduction of punitive fees charged to consumers who cash-in on their policy early.
Sheila Nicoll of the FSA said: “The proposals focus on addressing practical issues where policyholders are not always getting the fair treatment that they deserve. Policyholders expect to receive a fair return on their investments and that is what we want firms to be able to deliver for them”.
Currently, market value reductions (MVR) are placed on people who cash in early on their policy, which means they suffer a cut in the value of their funds. When people leave their policy before the completion of the agreed terms it can undermine the investments of others but the FSA says the use of MVRs to prevent them leaving may be too harsh.
An FSA spokeswoman said: “We don’t want them to be used as an exit penalty”.
The Authority also wants to ensure that the management of large funds is monitored by an independent committee and a specialist actuary.
Ms Nicoll said: “The purpose of these proposed changes is to ensure that with-profits policyholders are able to feel more confident that firms will conduct themselves appropriately now and in the future”.
