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Hargreaves Lansdown sums up with-profits

Hargreaves Lansdown is producing a guide to with-profits which it claims is aimed at tackling “ambiguous bonus announcements” and “shifty actuaries apologising for getting their sums wrong”.

The report covers financial strength ratings, the mechanics of with-profits, asset allocation and how it affects fund performance, payouts and the future of with-profits schemes.

As well as explaining the FSA solvency margins, the report shows the Standard & Poor&#39s financial strength ratings of the life companies.The guide shows Alba, owned by the Britannic group, on CCC rating and Legal & General on AAA.

The section on financial strength compares payouts for maturing pension plans based on a £200 a month contribution to a with-profits pension over 20 years. It shows Scottish Widows payouts were down by 19.7 per cent to £161,078 in 2002 from £200,512 in 2001 while Clerical Medical payouts were down by 9.22 per cent to £195,031 from £214,844 in 2001. The report concludes that investors should not invest in with-profits funds as returns will be poor for the foreseeable future.

HL says existing with profits investors have almost certainly done better than those in direct equity funds but it warns investors to re-evaluate their investments regularly and to be wary of MVAs.

Pensions research man-ager Tom McPhail says: “We have produced the guide in response to requests from clients through direct sales and our IFA arm. On the back of a series of bonus cuts, there is a great deal of uncertainty about the security of with-profits funds and, to a lesser extent, current solvency levels.”

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