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Low interest rates hit AIG plans for returning cash

AIG Life says it may not be able to make early distributions to investors who chose to move their assets from its enhanced fund into its protected recovery fund.

The £5.6bn enhanced fund was frozen on September 15, 2008. Investors were given half their investment back as cash and the option to put the other half in the protected recovery fund, which 95 per cent of policyholders took up, where orig- inal sums are to be guaranteed after three years.

The firm had hoped to distribute at least half the remaining sums to investors by 2012 through twice-yearly payouts, but it believes this is now unlikely due to low interest rates. It also warns that maximum returns will be “greatly reduced” if interest rates remain at current levels.

The February AIG Life newsletter states: “The low interest rate environment we now find ourselves in does present some challenges to the PRF. The first is that the coupons received by the fund will be much lower and this means that the maximum returns from the fund will be greatly reduced if interest rates remain at current levels.

“Also, with poor returns available on fixed-interest investments we will now need to invest a much higher proportion of the fund’s liquidity until the fund maturity date to ensure that the guarantees can be achieved.”

Informed Choice joint managing director Martin Bamford says: “This is more bad news for investors but it is not entirely surprising. People want their money back sooner rather than later but as long as investors get all their capital back by 2012, it will be better than nothing. There is still a risk that the guarantee might not be honoured though.”

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