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£8bn to exit with-profit market by 2012, says Skandia

Skandia predicts up to £8bn could soon exit with-profits bonds as investors make the most of the opportunity to avoid market value reductions on the policy’s tenth anniversary.

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.”

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Comments

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  1. richard jenkinson 25th January 2010 at 2:37 pm

    unfortunately any policy holders with their money tied up in NPI have NEVER had the opportunity of an MVR free access at any time !

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