Britannic Assurance has introduced a with-profits bond that aims to be more transparent than traditional with-profits bonds.
The Britannic Assurance with-profits bond builds on the concept behind the Britannic with-profits pension annuity, which brought transparency to with-profits annuities.
The bond invests in Britannic's with-profits fund and unlike traditional with-profits bonds, investors will be kept informed of performance and how the smoothing operates in practice. The charges will be explicit, which contrasts with the way traditional with-profits funds are run. Usually, the charges are deducted before the announcement of bonuses and it is difficult to find out the value of the investment until such an announcement is made.
Instead of presenting the value as units, annual bonus and terminal bonus, the value of the bond will be presented as one figure, which takes into account the smoothing process. Investors will also be notified of the actual returns, so they can compare this with the smoothed value of their investment.
The bond also guarantees that where a withdrawal is made on the tenth anniversary of the bond, and on subsequent anniversaries, the value of the investment will be at least 75 per cent of the value of the highest smoothed value. While this can be seen as a positive feature, another way of looking at it is that investors may be penalised up to 25 per cent if they make withdrawals after ten years.
Although Britannic may be applauded for trying to bring transparency to with-profits, it could end up confusing investors with too much detail as charges, stockmarket performance and asset allocation will all need to be explained. This is not easy to do, especially where investors have little investment experience.