At the tipping point: How Insurers should prepare ageing With Profits funds for closure
At the tipping point: How Insurers should prepare ageing With Profits funds for closure
03 Jun 2026
As many With Profit funds reach maturity and begin to run off, many funds are close to a tipping point. Insurers must proactively determine how their funds will be managed through to closure. Dan Phelan explains what insurers should consider when deciding the next steps to take.
Why it matters - The maturity of a product life cycle
A large number of With Profits funds will have a decision to take in the next few years about how the fund should be managed to a close. It is important that these plans are made well in advance of the sunset criteria being achieved to allow a smooth transition.
The sunset clause of the fund will define when the fund is deemed too small to be managed effectively, and what should happen next. However, acting before this point is reached is often in the best interest of both the firm and the policyholders.
What are the options?
For larger firms, consolidation of funds in a “superfund” is an option to extend the life cycle of the fund. This increased size allows the fund to continue in a similar state, with the increased scale allowing access to more illiquid assets and greater flexibility in future smoothing.
However, this option is not available to all. Smaller firms will likely need to consider the conversion of the fund to Non-Profit or a Scheme of Arrangement to distribute the remaining estate fairly, avoid investment volatility and mitigate the risk of increased costs.
Key factors in the decision process
While the importance of these considerations varies for each fund, some key themes will hold for all funds in this position:
| 1 | Clear communications to policyholders: These will be required throughout the process, with these being both timely, and set out plainly what will happen next. Further Consumer Duty obligations around gone-away exposure, fairness during run off and avoiding foreseeable harm will also need to be considered into any transfer process. |
| 2 | Timing is critical: Restructures and Schemes of Arrangement take time to design, process and implement. If a fund is sunset too late, remaining members may see their returns eroded by high management costs. However, triggering too early can lead to the loss of potential future investment returns. |
| 3 | The onerousness of guarantees: Often older funds will have ‘in the money’ guarantees, which will need to be appropriately compensated for on any conversion. |
| 4 | Ongoing cost management: Many With Profits funds will have cost agreements with the fund administrators, which potentially limits policyholder exposure. However, this can expose shareholders to increases in costs as funds are administered on legacy systems and require additional management focus during the wind down. |
| 5 | What happens next? In planning for the next steps for the fund, the focus will be on achieving the regulatory transition. As the structural change is made, there is likely to be significant transformation needed to administration and reporting processes to ensure effective ongoing management. |
Regardless of the option chosen, the key consideration is protecting the financial interests of the policyholder and ensuring fairness. As funds contract, the administration costs will increase, which will potentially erode the remaining estate unless there is a substantial smoothing buffer.
What should insurers be doing now?
While the considerations are complex, the priority for insurers in the short term is ensuring they have a realistic and actionable plan to achieve their desired outcomes. This plan needs to be sufficiently detailed up to, and beyond the implementation of any change, reflecting the significant compliance and transformation work needed to ensure a smooth outcome for policyholders.
Daniel is a Senior Actuarial Consultant within XPS Insurance Consultancy, if you would like to learn more, click here.
Please note the views of the author do not represent the views of XPS Group as a whole.
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