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Phoenix Life splits with-profits fund in bid to boost returns

Phoenix Life has split the National Provident Life Ltd with-profits fund so 15,500 policyholders without guaranteed pensions are exposed to more investment risk.

The closed life insurer’s with-profits bonus announcement, published this morning, confirms annual bonuses will remain at “low to nil” this year as the firm prioritises paying out final bonuses.

The level of final bonus varies depending on the policy taken out. For old Royal Life policies, for example, 35 per cent of the maturity pay-out on a 25-year life endowment policy will be through a final bonus, up from 31 per cent last year.

However, other policies have guarantees more valuable than the investments underpinning them – in these cases the customer will receive no final bonus payment.

In addition, Phoenix has overhauled the NPLL fund policyholders who do not have guarantees are exposed to greater risk. 

Phoenix says: “The NPLL fund often appears at the bottom of the performance tables due to the very low proportion of the fund invested in growth assets. 

“The investment strategy has, in the past, been limited because some of the policyholders in the fund have attractive guarantees.  To ensure these can be honoured, the investment managers have been unable to take any risks with the fund. 

“On 1 January 2014, we split the fund. For those policyholders without guarantees, we increased the proportion of growth assets supporting their policies from 5 per cent to approximately 50 per cent, providing them with increased potential for future growth through exposure to more assets with a higher risk profile.”

Phoenix also holds “excess assets”, or estate, in addition to those needed to pay with-profits policyholders on some of its funds. It says improvements in market conditions have allowed the company to increase the amount of excess assets paid to savers.

Phoenix Life chief executive Mike Merrick says: “The ability to distribute inherited estate is a key differentiator between open and closed funds and we are pleased to have increased levels of estate distribution again at the start of 2014. 

“This action, coupled with the good performance of assets, has led to an increase in maturity values in many of our stronger with-profits funds, and a reduction in MVRs.  This year we have also changed the assets mix for policyholders in the National Provident Life Ltd fund to provide greater growth potential for those policies without attractive guarantees available.”

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