Standard Life’s two million policyholders are set to receive windfall payouts from a £1.3 billion pot of surplus cash held by the UK insurer in its with-profits fund, it emerged yesterday.

The insurer said that it would pay the cash to qualifying policyholders as their policies matured, rather than paying out one lump sum to all its customers in one go.

UK insurers hold an estimated £20 billion of so-called orphan assets in their with-profits funds, pots of surplus cash that prop up the insurers’ solvency figures.

Aviva, parent company of Norwich Union, Britain’s biggest insurer, is planning to divide its £4 billion orphan assets between shareholders and policyholders and Prudential is also considering what to do with its pot of surplus assets, worth £9 billion. UK customers of AXA received payouts averaging £400 when the French insurer distributed its orphan assets in one lump sum in 2000. However, Standard Life refused to disclose how much of the £1.3 billion pot will be shared among its customers, leaving its policyholders in the dark over how much they can expect to receive.

A Standard Life spokesman said: “When other insurers, such as AXA, distributed their orphan assets, they made a one-off payment to all policyholders. We are taking a different approach and are giving enhanced payouts when a policy reaches maturity, or when it is surrendered or transferred. We are doing this because we want to retain some of this cash cushion over the life of our policies, some of which have decades to run.”

However, industry experts said that Standard Life’s stance would prevent investors from cashing in their policies until they had received their payouts, which might not be for many years.

Tom McPhail, of Hargreaves Lansdown, the wealth manager, said: “Standard Life has suffered considerable leakage out of its with-profits fund since it demutualised in July 2006. Once policyholders had got their shares, there was no special incentive to make them stay. It may be cynical to suggest it but this looks like another way of putting pressure on people to stay by keeping them guessing about the likely level of payouts.”

Dominic Lindsay, principal policy adviser at Which?, the consumer organisation, said: “It is disappointing that Standard Life has not given more information about how it intends to distribute its inherited estate, or orphan assets. We have been disappointed by the way other insurers have dealt with their orphan assets and will be keeping a close eye on what Standard Life does.

“When AXA divided up its orphan assets in 2000, policyholders eventually received just 31 per cent of the total sum. One good thing is that in Standard Life’s case all the money should eventually be going to policyholders.”

Standard Life insisted yesterday that shareholders would not receive any of the cash from the £1.3 billion.

Ned Cazalet, chief executive of Cazalet Consulting, the independent insurance analyst, said that the decision to pay out the surplus money in in-stalments was prudent. “If Standard Life distributed the entire £1.3 billion now, it would reduce the insurer’s room for manoeuvre with the with-profits fund,” he said. “The more capital you have, the better able you are to smooth out policy returns over the years.”

Standard Life has given some examples of what individuals could expect to receive now. Someone paying £50 a month into a 25-year mortgage endowment policy would expect to receive an additional £177 from the inherited estate on a policy maturing today. Those paying £200 a month for 20 years into a pension maturing now would receive £315.

Patrick Connolly, of Towry Law, the wealth manager, said: “The additional money from the surplus assets has given a small but significant boost to what were already a reasonable set of payouts. Standard Life has benefited from a larger equity weighting than many of the weaker with-profits providers and with equities performing well over the past year this has given [it] the scope to increase returns.”

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