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Standard Life cuts with-profits bonus rates of 500,000 customers


Standard Life has cut the annual bonus rates of 500,000 with-profits customers despite achieving double-digit returns in 2010.

It has reduced the bonus rates on the majority of its unitised life plans from 1.5 per cent to 1.25 per cent. Bonus rates on most unitised pension plans have been cut from 2 per cent to 1.5 per cent. A spokeswoman says this will affect half of its 1 million with-profits customers.

Investors in unitised life and with-profits plans with price growth guarantees have had their bonus rates frozen. The firm’s with-profits funds achieved returns of between 10.8 per cent and 13.3 per cent for the 12 months to 31 December, 2010.

Standard Life with-profits communications manager Margaret Flaherty says the decision will allow the provider to “keep an appropriate level of flexibility” in the amount invested in assets such as property and equities.

She says: “Plan value depends on investment returns on the with-profits assets. In the long run we expect asset classes such as equities and properties to offer better prospects for with-profits payouts. To allow us to keep an appropriate level of flexibility in the amounts we can invest in these asset classes, we’ve decided to change some bonus growth rates from today.”

Hargreaves Lansdown pensions analyst Laith Khalaf says: “In our view with-profits funds are complex and opaque and are best avoided as a home for new investment. Existing investors should consider whether better investment opportunities exist elsewhere, but should always pay attention to the terms of their policy before transferring.”


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There are 17 comments at the moment, we would love to hear your opinion too.

  1. This is just another example of being at the beck and call of some nameless actuary. What a nonsense this type of investment is in this day and age of supposed transparency. Anyone in their right mind should look to get out of this even at a cost if at all possible.
    With profit investments are dead in the water and I could not think of any circumstance that would justify going down this route.Standard life used to be regarded as the office for with profit in the dark days before the advent of unit linked investment lead by the likes of Abbey, Hambro and latterly Skandia life.Surely this type of behaviour is the last nail in the coffin !

  2. No control over charges, no control over returns, no control over asset allocation – all With-Profit plans should be reviewed.

    Skandia offer a very useful With-Profit Bond analysis tool, data sourced from Cazalet Consulting.

  3. Is it not time that the FSA looked at these products under the TCF rules. These products are nothing like what clients bought into in the first place. A guaranteed sum with the addition of bonuses which once added cannot be taken away. Whilst it might give investment freedom it places greater emphasis on terminal bonuses which as we all know are as about as opaque as with profits funds.

  4. Tyburn Asset Management 1st February 2011 at 10:36 pm

    The FTSE100 is up 33.9% (FT website) on this time last year yet Standard Life are cutting the with profit bonus rates to 500,000 customers.

    The chief executive of Standard Life is David Nish. Quoting the telegraph newspaper (1.2.11) ‘Mr Nish will be paid £700,000 a year, against the £745,000 basic salary Sir Sandy received last year. He could earn up to £2.6m from cash and share bonuses.’

    gives you that lovely warm feeling inside doesn’t it knowing this nonsense is going on.

  5. @ John Duthoit

    I do wish people could stay calm and not exaggerate so much.

    Although I wouldn’t recommend a new policy it is very often the case that clients should continue and not “get out even at a cost”.

    Only yesterday I looked at a policy growing at an effective rate of 7.5% pa since the last surrender value.

    Some should get out, probably a minority and some should continue. There is no simple rule here and each case has to be analyzed properly.

  6. If you look at returns over the last few year this simply des not add up. Such behaviour cannot be allowed to continue. Investors have been totally misled and action needs to be taken against Standard Life. Individual action by investors to withdraw, whilst understandable, will only fuel the problem. What is needed is collective action so investors’ interests are not being compromised and that they are treated fairly. How can we make this happen ?

  7. For sure, another nail (as if any more were needed) in the coffin of With Profits. If you must, why not buy a managed fund – at least what you see is what you get?

    No doubt I’ll get an even redder letter from them re my endowment shortly. At least it matures this year so I can put the money somewhere/anywhere more useful.

  8. I`ll say it agin for the umpteenth time, You should only be allowed to offer a with profits fund if you are a mutual organisation. Will the FSA listen? What do you think!

  9. I have just had 2 with-profit endowments mature after 40 with Standard Life and one with Windsor Life ( taken over from Gresham Life)

    Windsor Life paid out at least 8% more!!!!!!!!

  10. John Hutton-Attenborough 2nd February 2011 at 10:39 am

    So the message from Standard Life is that they intend to reduce the level of guarantees that they have to provide to their customers so that they can increase the potential risk of the asset classes that they invest in “for the potential better returns” that may be achieved over time. So more potential volatility and yo-yoing terminal bonuses reflecting market returns with the penalty of severe MVAs when times dictate.
    As has been mentioned above you may just as well go for a managed fund. I thought the whole point of With Profits was to smooth out the volatility of market performance.

  11. Cannot but feel this headline is more than misleading. The reduction to terminal bonuses to some policy holders is more than offset by the increase in terminal bonuses to the majority of policy holders. From what we can see the reduction applies only to unitised policies, whereas the increase has been made to the original with-profit contracts, where we have seen a 25-year term go from 7% in 2010 to 8.6% this year.

  12. Problem has been caused by too many do gooders sticking thier noses into stuff they don’t understand.
    The fault lies with the FSA getting With Profits funds to sell equities when the market was at the bottom. If With Profit funds had been left alone they would be much stronger than they are now.

  13. Well at least this is not a ‘zombie’ fund, it still pays some bonuses.

    With Profits funds are hard for policyholders to really understand as they do not show any volatility in the fund value unlike unit linked funds. They also send out nice CPPFM docs to policyholders written by and for actuaries. Incorrigible and unintelligible.

    They of course do not show the effects of inflation on those with profits funds that have as an example paid out zero bonuses since 2002 e.g. Pearl Assurance.

    Throw in a market value reduction on exiting the fund and hey presto policyholders are inclined by these issues and FSA behaviour to remain where they are.

    That said some with profits funds do offer access to valuable guaranteed annuity rates as well as in rare cases guaranteed returns.

    Still the latter points of merit are relatively rare versus the more common zero bonus rates.

  14. I see Skandia have got their sales consultants posting on here to advertise their tools. How is business Lisa spiers?

  15. Anonymous | 2 Feb 2011 1:30 pm

    Problem has been caused by too many do gooders sticking thier noses into stuff they don’t understand.
    The fault lies with the FSA getting With Profits funds to sell equities when the market was at the bottom. If With Profit funds had been left alone they would be much stronger than they are now.

    Finally someone with some real knowledge of with-profits funds. Shame the FSA aren’t about to own up though (and aren’t subject to Freedom of Information)

  16. I agree Standard Life should be taken to court for breach of promise and financial mismanagment in a class action. At least with Robin Hood you knew were going to get mugged and could avoid the forest.

  17. The perils of being forced to demutualise personified. Standard Life is going to serve its shareholders, so why is anyone surprised?

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