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MVRs slashed but WP funds still in doldrums

The average market value reduction on with-profits funds has fallen from 42 per cent to 5 per cent over the past three-and-a-half years.

Data from Standard & Poor’s shows that MVRs hit their peak in December 2002 and have since been on a gradual downward spiral as investment markets have recovered from the dotcom crash.

Last week, both Norwich Union and Scottish Widows made further cuts in MVRs across their with-profits funds.

But both firms warned that despite improving returns and decreasing MVRs, WP payouts are set to continue falling for at least the short term.

The Hartford managing director, marketing, John Enos says: “With-profits is a non-performing asset. We have seen MVRs come down as a percentage of surrender values in the past few years but with-profits bonus rates are on average around 2 per cent despite investment returns of 9-10 per cent.”

Hargreaves Lansdown head of research Mark Dampier says: “The stronger life offices do not need to charge MVRs but I am still not sure that there is a future for with-profits.

“Everyone has lost so much faith in it and that is partly because people now partly understand how it works and do not want it now.”

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