Research by the investment firm has concluded that hundreds of thousands of investors could take advantage of MVR-free spot guarantees available over the next three years to exit with-profit bonds.
An MVR-free spot guarantee enables investors to withdraw their money on the tenth anniversary of the bond’s start date without incurring the usual penalty, which applies if a policyholder chooses to cash a policy in early.
Skandia says 70 per cent of investors believe MVRs to be the largest barrier to transferring out of with-profits products. An analysis of 287 with-profit bonds from 38 companies showed that at least 390,000 bonds, or £11.5bn in assets, are estimated to contain 10-year anniversary MVR-free spot guarantees. Therefore, based on these figures as many as 273,000 bonds sold between 2000 and 2002 could be surrendered in the next three years. If surrendered this represents £8.1bn of the £38.4bn bond market for that period.
Skandia UK chief executive Nick Poyntz-Wright says: “In addition to enduring questionable investment performance, many with-profit investors have been trapped by MVRs, which are essentially a hidden and often substantial exit penalty.
“Over the next three years, which represent the ten-year anniversary of the boom time for with-profits sales, many bondholders will effectively have a ‘get out of jail free’ card and should carefully evaluate their position given the potentially serious consequences of missing out during this window.”