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Skandia survey shows FARs from the with-profits crowd

Choosing a life office on the basis of its free-asset ratio in the hope of achieving higher returns is a lottery, according to research from Skandia.

Free-asset ratios are widely used as a measure of financial strength and often seen as a critical factor for many IFAs when choosing with-profits providers.

Skandia&#39s research shows a high FAR does not always mean high returns. It took the FARs of 20 life companies in 1985 and compared them with payouts 15 years later.

It found there is only a 3 per cent correlation between the figures. A 100 per cent correlation would mean FARs are directly linked to returns.

FARs are criticised by many as a crude measure and can be calculated in different ways, making them difficult to compare. But most agree financial strength is important so with-profits funds have investment freedom.

Skandia group marketing manager Peter Jordan says: “Most people&#39s perception is that free-asset ratios have a strong impact on results and financial strength is critical. The reality is nothing like that. This shows that the way the industry approaches with-profits is totally at odds with the results.”

Clerical Medical appointed actuary Adrian Saunders says: “Free-asset ratios are themselves a pretty blunt instrument. You have to look behind the headline figure. You do need enough free assets to be comfortable that investment freedom is not constrained.”


Yorkshire Building Society – Three Year Stepped Rate Bond

Wednesday 6 February, 2002 Type: High interest account. Minimum-maximum investment: £1,000-£500,000. Interest rates: Year one 4.75 per cent gross a year, 4.65 per cent gross a month, year two 5.25 per cent gross a year, 5.13 per cent gross a month, year three 6.25 per cent gross a year, 6.08 per cent gross a month. […]

Universal Building Society – 5 Fixed Year

Fixed term: 5 yearsFixed rate: 5.49% Minimum loan: £20,000Maximum loan: £350,000Income multiples: 3 times principal income, or 2.5 times joint incomeArrangement fee: £295Redemption fee: 4% of advance in first five yearsConditions: noneIntroducer&#39s fee: £100, negotiableTel: 0800 0288 383

Liverpool Victoria Friendly Society – With Profits Pension Annuity

Monday 4 February, 2002Type: With-profits annuity. Minimum investment: Lump sum £7,500. Minimum age: 50. Income frequency: Monthly, quarterly, half-yearly, annually. Charges: Implicit. Options: Can be converted from with-profits to conventional annuity on annuitant&#39s death. Commission: Initial 1 per cent. Tel: 0845 6020690.

IHT information for IFAs

Scottish Mutual International has produced an IFA information pack explaining the basics of inheritance tax and highlighting the importance of estate planning.The company says IFAs have a vital role to play in offsetting their clients&#39 potential IHT liabilities.SMI says the Treasury takes in £2.3bn a year through IHT and much of that amount could be […]


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