1.  Over recent decades, the with-profits sector has suffered from a perceived conflict of interest on the part of the management of life funds, leading to concern among some holders of with-profits policies that their interests have not been adequately protected. The public policy interest in the with-profits sector is reflected in the recent active involvement of the Financial Services Authority (FSA), holding consultations and making judgments on various aspects of with-profits funds, with the aim of clarifying its rules regarding with-profits funds and ensuring that life firms treat policyholders fairly. Certain life firms have recently contemplated making significant changes to a portion of their with-profits funds called "inherited estate", which has required the FSA to provide further clarification and guidance. Our inquiry's main purpose was to scrutinise the performance of the FSA in its regulation of the treatment of inherited estate.

2.  The genesis of our inquiry into inherited estates lay in our ongoing scrutiny of the FSA and we signalled our interest in this area when hearing oral evidence from the FSA on both 9 October 2007 and 22 January 2008. On 26 February 2008, we announced our inquiry into Inherited estates and invited written evidence. The written evidence we received is published with this Report or has been reported to the House and made available for public inspection. In April we held two oral evidence sessions, taking evidence from Which?, the Policyholder Advocate on behalf of Norwich Union for the CULAC and CGNU funds,[1] the FSA, Norwich Union and Prudential. We are most grateful to all those who assisted us in the course of our inquiry.