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Product matters

The first of the so-called new breed of with-profits funds has been introduced by Scottish Widows. This is available as a growth or an income bond.

The idea behind these funds is that they should “fit well with the likely direction of the ongoing Sandler review and FSA with-profits review”.

If you like with-profits bonds, they look like very nice ones. Widows promises there will be lots of disclosure, transparency of charges and no build-up of inherited estates (free assets). The technicalities seem to differentiate the way the funds work from other with-profits funds.

What Widows is recognising is that with-profits cannot continue in its current format. The fundamental problem the industry has is that, whatever changes may be made behind the scenes, it still looks and acts like good old with-profits.

Transparency is one of the aims of the FSA review. However, any fund that uses hedging techniques must remain somewhat opaque.

But should anyone be investing new money into with-profits? All funds have been severely mauled by the markets in recent years and hold less surplus than the average IFA has in his current account a week before pay day.

The income version of Widows&#39 fund manages a 100 per cent allocation, 4.75 per cent bonus rate and 6.5 per cent commission. This makes 111.25 per cent, which is impressive, given that all investment returns after charges are used for the benefit of policyholders. No realist can expect investment returns anywhere near 10 per cent. Something doesn&#39t add up.

Danny Cox is pension development manager at Hargreaves Lansdown

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