Friends Provident restricts property fund withdrawals

by Gill Montia

Story link: Friends Provident restricts property fund withdrawals

Friends Provident has altered the terms of withdrawals and switches from its £1.2 billion property funds.

This year has seen a sharp decline in demand for UK commercial property and from now on withdrawals and switches will be deferred for up to six months from the date of request.

All existing automatic lifestyle switches within pension contracts will continue to be honoured, as will existing regular withdrawals from investment bond products.

The six month period of notice applies to surrenders, part surrenders, regular withdrawals, switches or transfers out of the funds.

It will not affect the company’s contractual obligations with regard to death claims, critical illness claims, maturities, court directed splitting of pension policies on divorce and pension policyholder retirements that are at the selected retirement age as specified in the policy.

The insurer’s property funds have been experiencing significant and sustained withdrawals since the beginning of the credit squeeze, and the company has acted to ensure that it can continue to meet payment obligations to policyholders.

Friends Provident expects to sell underlying property investments in the funds and by introducing the notice period on redemptions, fund managers will be able to dispose of properties on the most fabourable terms.

Without the notice period, properties would need to be sold quickly and at prices that would have an adverse effect on the value and liquidity of the funds.

In this case, the majority of policyholders (those who retain their investment in the funds), would be at a disadvantage to policyholders wishing to switch or withdraw investments.

The notice period pertains to the Friends Provident internally managed property funds only and no restrictions apply on any other Friends Provident funds.