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Cazalet says with-profits have now become bond funds

Life analyst Ned Cazalet is warning that with-profits funds have effectively become bond funds and that projection rates used in the sale of pensions and with-profits bonds are going to have to come down as a result.

He says current projection rates of 6 per cent for with-profits bonds and 7 per cent for pensions should be trimmed by 1 per cent.

Cazalet has also attacked the returns offered by these products, claiming that once charges have been removed, savers would be better off with money on deposit.

He says the average with-profits fund has seen the amount of equities held reduced to 35 and 30 per cent compared with 70 per cent in the past and now resemble bond funds.

He predicts that life offices, stung by managing their solvency position in the current bear market, are unlikely to return to the high equity ratios of the past which underwrote higher levels of performance.

Cazalet says: “If you say returns of 5 per cent and take away 1.5 per cent for costs such as commission, is with-profits then worth the complexity?

Chartwell director Pat-rick Connolly says: “Investors have to understand that asset allocation in with-profits has changed, and whether it still meets their needs or risk profile. But much of this applies to equity funds.”

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