Standard Life sets vote time-table

ReportInvestor

Edinburgh Evening News

Details of how many shares they might receive and what these shares might be worth will go out at the end of April

"......... the deadline for returning postal votes is set for May 28.

A vote will then take place on May 31 at a special general meeting at the Edinburgh International Conference Centre, with 75 per cent of the eligible membership needing to vote for a demutualisation for any stock market listing - expected during the summer - to proceed.

Today, Standard Life confirmed that eligible members among its 2.4 million policyholders would receive a fixed allocation of shares from any public flotation. And it said that most eligible members would also qualify for an additional variable allocation of shares depending on "the size of their with-profits investments as at March 30, 2004 and the length of time those investments have been continuously invested in with-profits with Standard Life as at that date". For legal and practical reasons, overseas members are expected to receive cash.

The company has given no guidance on the size of any potential windfall, stating that it would depend on the level of the FTSE-100 - which the company would immediately be eligible to join with an expected valuation of between £4 billion and £6bn - at the time shares are to be distributed.

Analysts initially expected average pay-outs would be between £500 and £1000. But since Standard Life first confirmed its plans to go public last October, the FTSE-100 has jumped from 5500 to just under the 6000 level - around eight per cent, leading most analysts to believe the average pay-out could be nearer the upper end of the range........."

Continues.

Milarky

"the size of their with-profits investments as at March 30, 2004 and the length of time those investments have been continuously invested in with-profits with Standard Life as at that date".

Keeping their cards close to their chest aren't they?

So, since most people won't know what their policy was worth this time 2 years ago, Standard life would need to send out a letter in April telling them how many shares they will actually get - without knowing what the share price attaching to those would be of course.

Hang on, what about the last two years then - don't these count as generating any return for the company? Also note that policies that where within 2-3 years of maturity at the time (and so just coming upto maturity now) may actually have dropped in 'value' since then (based on a surrender quote then and now) and get further variable shares as a result. Also, Feb/March 2004 saw Standard Life policies recovering dramatically from the low point reach the year earlier (returning about 10 percent that year) but have had a much slacker two years since.

Milarky

As many customers will have been holding out for the DM benefits but will want to ditch their policies once they qualify, it is in SL's interest to retain these as future customers rather than as former-policyholders. If they were going to offer a shares option - and given these are 'savings' plan policies (regular premium rather than lump sum) - it makes sense to offer these on-going and possibly tie them to the payment of premiums. Thus SL could:

- offer a 'save-as-you-save' (like SAYE) investment account for five years, say, allowing existing policyholders to save about twice their regular premium at a guaranteed interest rate of about 4.5% (which they can easily afford) which converts to an option to buy SL shares at a fixed price/discount in the future. It seems the obvious way to motivate / encourage the loyalty they have sorely abused till now, so I wonder if they'll do anything of this sort?

ReportInvestor

Interesting idea, Milarky.

I seem to recall that at least one MSE IFA suggested there might be a mass exodus of policyholders post DM. Standard may wish to take action to limit the damage.

I think the IFA suggested that Standard might limit the damage by imposing high MVRs to protect existing policyholders.

Carrots like yours are better than sticks IMHO.

Standard is also keen to explore ways to keep its future small shareholders - IA link

A decent dividend would be a good start.

The alternative solution is to offer a % of shares to those who hold for a year or more a la Friends Provident demutualisation.

Given the Aviva / Pru merger ideas recently & talk of sector consolidation, holding over the first 12 months is probably a good idea anyway.

If Standard comes up with a similar idea, it could be a potential winner for investors .

Milarky

The other concern policyholders like myself have have is over the future direction of the final bonus (FB) structure. We have to assume that SL won't abandon final bonusing unless it can't afford it. The reason for giving a non-guaranteed top-up as opposed to carefully adding to the annual bonus at a higher rate is that discretion this allows them to invest a percentage of the fund in equities. Thus final bonusing is here to stay. Besides this SL have stated several times that they have never not paid a terminal bonus on maturing policies. To not be able to pay a termninal bonus in those circumstances looks bad anyway. So they "won't go there", IMO.

But that leaves the fact that they are steadily bringing down the FB - as though it were going to zero - on maturing policies, whilst it actually has gone to zero for many less mature ones. Yet we 'know' they won't go all the way to zero (barring future disasters which won't recur) so they must intend to stop the constant reductions somewhere above. And then they may (should, IMO) gradually restore the FBs for those 75 percent of policies where it is now zero back upwards.

What SL may prefer to do is skew FB towards maturity instead of levelling it out (i.e. paying the same percentage to all policies in future) as the situation (hopefully) improves. This would be wrong IMO since the rationale for having a FB is that it allows more to be generated for the fund 'as a whole' than otherwise. What's the point of taking some of this extra reutrn attributable to a 15 year policy and giving it to a 25 year policy (as an enhanced FB) since both policies have been identically invested during the same 15 years and the returns will have occurred on in the most recent of those years? The only justification for skewing - a very slight one - is that maturing polices would be used to pay off mortgage commitments earlier than the equivalent mortages for newer policies need to be repaid. (Many mortgages do get paid off ahend of time, of course) In effect this likens the situation to the way the government has set up the Finanacial Assistance Scheme (FAS) to only help those within three years of retirement. The implication is that younger workers (some in their late fifties) could somehow pull themsleves up fincially with those few extra years to play with. Just like the government's dodgy arguments around the FAS, though, there is no real justification for treating policies closer to maturity than those less close preferentiallly over the FB. Remember than these policies have differential 'basic' values already - reflecting any geniune difference in the contributions that their premiums had built up - so the case for a flat-rate FB is the same as the case for saying that the government should help people all people in proportion to what they will have built up in failed pension schemes - not just some of them.

So I'd like to see a policy on FBs shift towards making them 'flat-rate' and a gradual return to proper annual bonuses (Last year they more spectral than real - 0.5% and 0.25%) as circumstance allow. That fragility alone suggests that differential FBs would be pointless - they would not be big enough to impress the 'winners' and would simply anger the 'losers'. (It was a different game, of course, when everyone got more every year and didn't ask what the 'others' were getting because someday they would be the 'others' themelves.)

Another point too. This is now a 'closed' fund is it not? No one is joining it anymore - so there are no more new people to steal (erm 'rebonus') from and people are simply leaving (by surrender maturity or death) by a natural process of attrition Thus the argument for making the run-off more equitable in the future is all the greater.