Scottish Friendly Assurance has introduced another issue of its growth and security bond, which invests in the Scottish Friendly with-profits fund.
The with-profits fund invests 48 per cent in UK stocks and shares, with the remainder going into property, fixed-interest securities such as government bonds, and cash. Investors who access this fund through the bond receive an annual bonus, currently 5.25 per cent. This is 0.75 per cent lower than the previous tranche established in January 2001 because share prices have suffered within the space of a year.
A loyalty bonus of 2.5 per cent will be added on the 10th anniversary of the investment and, as with other with-profits bonds, a final bonus may be also be added.
The bond is designed to be held for at least five years, but this does not prevent investors from having access to their capital within that period. They can withdraw up to 7.5 per cent a year as a form of income on a monthly, quarterly, half-yearly or yearly basis. If they cash in the bond early there is no redemption penalty, but a market value reduction may be applied which could reduce the encashment value.
People who are preparing for retirement may find the growth and security bond attractive as an alternative to building society accounts, which have been affected by falling interest rates.
The January 2002 with-profits survey from IFA Baronworth Investment Services shows that Scottish Friendly offers a higher annual bonus than providers such as Prudential and Scottish Equitable. It is possible to get a higher annual bonus of 6 per cent through the Winterthur Life with-profits bond, but investors who cash in the bond during the first four years pay a redemption penalty of between 8 and 1 per cent.