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Emma Simon: With-profts – the forgotten investments

Interest in WP policies has declined on all fronts

Emma Simon MM blog

A decade ago a major life office, like Standard Life, announcing its annual bonus payments was considered important financial news.

It would be covered in the City pages of national newspapers, and as the “bonus season” got underway, there would be further features in the weekend sections analysing which companies’ policies were paying the most, how payouts varied from previous years and so on. After all millions of people had their retirement and mortgage savings tied up in these complex plans, so needed to know how they were performing.

How times have changed. Last week Standard Life’s annual statement caused barely a ripple in the torrent of today’s 24-hour news cycle.

Most national newspapers ignored it completely. You could argue with-profits policies aren’t as popular as they once were. Many have cashed in their endowments, and who in their right mind is buying a with-profit bonds now?

But this overlooks the fact millions still have substantial investments in these often failing funds. Standard Life alone has 1.4m policyholders.

You could also point out that “Insurer cuts bonuses, again” does not really fulfil the “new” criteria in news.

There is another problem too. With the advent of the internet, rolling TV broadcasts, and ever-shrinking newsdesks there is a bias towards strong punchy stories, that can be delivered quickly and are easy to understand.

Standard Life cuts bonus rates on some policies but not on others, while applying varying terminal bonuses on other plans, does not neatly fit this mould.

“Payouts in terminal decline after falling 25 per cent in five years” is certainly a compelling line. But it still does not lead to the “sell your assets now”-type story, beloved by over-excited news editors.

The picture is a little more complex: are there guarantees, a toxic exit penalty, or an maturity bonus soon? Or are the pootling returns not too bad when compared to what you could get elsewhere.

The life companies themselves certainly do all they can to make reporting such stories as difficult as possible. Standard Life’s announcement, for example, mentioned bonus rates, it mentioned plan values had increased, and pointed out that MVRs were on the wane. But was there any mention of how bonus rates compared to those paid a year ago? What do you think?

It is not just journalists who no longer seem interested in with-profits policyholders. While Standard Life continues to run the funds and administer the policies it once sold by the bucket-load, most insurers have washed their hands of this business altogether now it is no longer as profitable.

Let’s not forget these are the same companies that penalised customers who stopped or altered premiums because their circumstances had changed. The bleating excuse was that these were ‘long term’ savings plans.

But insurers have not kept their side of the bargain. Funds have been sold on, and the nature of the investments have changed beyond all recognition.

What is the point of a plan that aims to smooth out the ups and downs of the stock market if most have very little exposure to shares at all!

And finally I wonder whether advisers too have lost interest in these customers. Are many advisers who earned 8 per cent-plus selling with-profits bonds now contacting customers to see how these investments have fared?

And are those left holding ‘zombie’ funds inclined to pay £500 to have this policy reviewed to see whether it has one of these fabled guarantees? I doubt it on both counts. These customers have been badly let down by the the financial services industry, but sadly these days that barely counts as news either.

Emma Simon is deputy personal finance editor at the Telegraph Media Group

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Comments

There are 4 comments at the moment, we would love to hear your opinion too.

  1. RegulatorSaurusRex 7th February 2013 at 9:44 am

    Ponzi schemes, slush funds… all have been milked dry.

  2. Let’s face it, with profits (in particular) with profits bonds, were sold in their droves by IFAs over the years.

    I worked at a bank and refused to sell them to anyone, but that put me at a huge disadvantage compared to the rest of the advisers and our targets. If I put together a portfolio of investments, it was usually a mix of unit trusts, corporate bond funds etc and very often I referred clients to stockbrokers for advice on shares and gilts etc. I typically took a maximum of 1.5% in commissions.

    My colleagues would consruct a portfolio of a mix of with profits bonds, the mix being a “diverse” portfolio, and take all the commission on offer.

    The clients would be advised to take 5% income on a monthly basis and were promised long term growth.

    No wonder some of these advisers are not going back to their old clients!

  3. Like Anon 9.55, many of us could see more than a decade ago that with-profits were a failed form of investment. The failure to smooth the problems of 2000-2003 showed the whole thing up for the farce it was and I never did any such investments again.

    For some reason, some advisers took longer to accept the truth – maybe they had put so many clients into them for so long they didn’t want to admit it to themselves?

    Anyway, the job of advisers now must be to review these and, where appropriate, get people out of these non-performing investments. If they don’t review their own clients, another IFA might do it for them.

  4. Interesting comments from the blinkered damn the with profits brigade. The top three or four companies, including Prudential achieved much better than FTSE performance even on surrender values. So those of you who drew money out for anything other than tax considerations and opted for managed or most other funds predominantly in shares (and in maybe took commission on the switch ? should be apologising. My Clients in With profit Bonds are more than happy. My only regret is that I too – under pressure from supposed experts also moved some – bad move indeed

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