Windfall pledge at Standard Life

STANDARD Life is to shed its mutual status and seek a stock market flotation, triggering windfalls of about £1,750 for 2.6 million savers.

The 178-year-old Edinburgh group revealed today it had decided to press on with a demutualisation first mooted two months ago when it promoted Sandy Crombie to replace Iain Lumsden as chief executive.

Some 1000 jobs are also set to go from its 11,000-strong UK workforce as the group, Europe's biggest mutual, looks to slash 20% of its cost base and haul itself into a new era.

Standard Life has taken a battering from the recent three-year bear market and sharp falls in sales of with-profits products, once the cornerstone of its financial health but now only 20% of its new business.

Crombie said demutualisation was inevitable given the pressures the group is now facing and the need to reposition its life and pensions business and raise new funds.

'To support our existing businesses and to realise the growth opportunities open to us as a diversified services group, we have concluded that we will require access to further external capital,î,' he said.

'While being a mutual has been a key part of Standard Life's success in the past, we now believe that raising further-capital by way of demutualisation is likely to be in the best interests of the company and its policyholders.'

Plans for a demutualisation will be drawn up over the next two years before being put to policyholders at the group's annual general meeting in 2006. A flotation could follow within months.

The biggest windfall payouts so far

Standard Life's policyholders will get a first chance to air their feelings about the move to the board at this year's annual meeting, which takes place in Edinburgh on Tuesday next week.

Crombie refused to be drawn on likely payouts to savers but they could reach upwards of £1,750 given the group's current surplus of £4.6 billion. The windfall will almost certainly take the form of shares in the Plc.

Analysts believe Standard Life was forced to bring forward the review of its business once the Financial Services Authority rapped its management at the turn of the year over new realistic rules on solvency levels and forced it to bolster its capital reserves.

The group's free cash has been eroded by falling share prices and its expansion into markets such as China and Canada.

Crombie insisted the group's need to change did not necessarily mean other mutuals such as Royal London, Royal Liver and Liverpool Victoria would follow suit.

'I've been at pains to say today to people that I don't want to be the spokesman for the whole mutual movement,' he said. 'We have enough enemies already.'

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Questions & Answers

Am I entitled to a windfall?
Those most likely to benefit are the 2.6 million savers holding Standard Life with-profit policies (out of a customer base of five million) as they have voting rights and would receive compensation for losing their membership status. It ultimately depends on the way Standard Life chooses to demutualise.

Is it worth taking out a policy now to get a windfall?
No, it's too late. But 465,000 policyholders whom Standard Life asked to sign away their right to a windfall when joining over the past four years, in a bid to deter carpetbaggers, will be entitled to payouts.

What size windfall would I get?
The payout will vary depending on the life and size of any policy. The best estimate today is £1,750 - the current surplus on the with-profits fund, £4.6bn, divided by the number of with-profit policyholders. The actual amount cannot be determined until its market value at the time of a float is clear. Standard Life may also choose to boost policy values rather than hand out cash or shares.

I thought the windfall would be nearer £6,000.
It could have been four years ago when policyholder Fred Woollard launched a demutualisation campaign. Standard Life's market value was then estimated at £16bn. Analysts now believe the company is worth between £4bn and £5bn.