Friends Provident imposes redemption restrictions on Property Fund

Friends Provident, the FTSE 100 life and pensions provider, has today imposed a notice period during which policyholder switches and withdrawals from the £1.2 billion Friends Provident property funds will be deferred for up to six months from the date of request.

This decision reflects the general sharp decline in investor demand for UK commercial property in 2007, brought about by the ‘credit crunch’, following several years of very attractive returns.

Friends Provident will continue to honour all existing automatic lifestyle switches within pension contracts and existing regular withdrawals from investment bond products, in addition to its contractual obligations regarding death claims, critical illness claims, maturities, court directed splitting of pension policies on divorce and pension policyholder retirements at the selected retirement age as specified in the policy.

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

In line with many other companies, the commercial property market decline has led to significant and sustained withdrawals from Friends Provident property funds. In these circumstances and in order to continue to meet payment obligations to policyholders, it will become necessary to sell underlying property investments in the fund.

Given that it can take several months for the sale of a property to complete, it is normal for companies offering property funds to have the option of introducing a notice period on redemptions to allow the fund manager to sell properties on the best terms for the future benefit of all investors in the funds.

The alternative would be to attempt to sell these properties quickly, which would result in a lower sale price being obtained. This would have then an adverse effect on the value and liquidity of the funds and would place those policyholders who choose to remain invested in the funds – a clear majority - at a disadvantage to those who are wishing to switch or withdraw.

Accordingly, the option to introduce a notice period will give greater opportunity to ensure there is sufficient liquidity within the Friends Provident property funds for the ongoing benefit of all policyholders invested in the fund and that they are all being treated in a fair manner.

Property remains an important aspect of a well balanced and diversified portfolio for many customers over the medium to long-term. Properties held within the Friends Provident property funds are of high quality and have well respected tenants.

This announcement is only relevant to the Friends Provident internally managed property funds and no restrictions apply on any other Friends Provident funds.

Friends Provident is a leading UK financial services group and a member of the FTSE100 Index with a strong financial base as evidenced by the independent insurer financial strength ratings from Moody's, A1; Standard & Poor’s, A+; and Fitch, A+.