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Standard Life cuts with-profits bonuses as investment returns hit 8%

Standard Life 480

Standard Life has reduced annual bonus rates for 600,000 with-profits savers with the provider’s ‘Heritage’ investment fund delivering returns of 7.9 per cent during 2012.

The insurer has cut bonus rates on unitised life plans from 0.75 per cent to 0.5 per cent and unitised pension plans from 1 per cent to 0.5 per cent.

A spokeswoman says around 600,000 people will be affected by the decision, which has been made to give the provider greater investment flexibility.

Annual bonuses on the Standard Life with-profits bond have been held at 2.5 per cent.

Standard Life with-profits communications manager Margaret Flaherty says: “We are pleased to say that customers have seen a year-on-year increase in the value of their plan.

“In the last year a typical pension customer has seen a return of 7 per cent on their plan while a typical endowment customer has seen a return of 5 per cent.”

Example payouts:

Standard Life Jan 2013

At 31 December 2012 the asset mix and investment return details were:

Standard Life table 2013

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Comments

There are 11 comments at the moment, we would love to hear your opinion too.

  1. Does any lay person understand the message this item is meant to be delivering? I sure don’t. 0.5% doesn’t seem like 5% return to me. I must be missing something!!!!

  2. So the With Profits Fund has achieved returns of 7.2% yet only passing on 0.5% to fund holders. I understand with profits are designed to smooth out returns, but whats happened to the difference. With Profits fund need to be transparent and show their true costs and charges!

  3. Sadly these comments, and the crass title says it all. It is hard to understand (and that is why with profits is dying off), but annual bonuses are just part of the story. There are increases in terminal bonuses to compensate and pass on the full return. Annual bonus rates are being cut by many with profits companies because they become guaranteed, and the FSA and the EU regulators are increasingly forcing insurers to hold more and more reserve capital against any guarantees.

    As for the title to the article – a pathetic attempt to mislead by selective quotation.

  4. One hopes the initial comment isn’t from an IFA.

    It’s very simple….terminal bonus is the difference.

  5. Typically badly written partial information artical! Should it have read that those % are applied to an existing amount that included a guarantee at outset plus bonuses to date to give the 5% return???? Also what has happened to Terminal Bonus rates as these can make a vast difference to a policy value??? Agree with other about where’s the rest gone. Need to be more transparent. However suspect the answer will still be employee bonus or shareholder!!!!

  6. “Don’t see how that can be interpreted as “a pathetic attempt to mislead”?”
    And that just about sums up the problem!

  7. With Profits no thanks 30th January 2013 at 4:57 pm

    One of my first jobs was working for CGU and at the time we were brainwashed into thinking that with profits was a good product, it was in 2000 that I had a wake-up call when MVR became commonplace. The fact is you can’t advertise a product is guaranteed when MVR can apply and nowadays I prefer well constructed portfolios with no guarantees that give flexibility for clients to get in and out of the market as they choose.

    If clients want guarantees they should stick to deposit and national saving products as I’m now a hater of all with profit funds and structured products. Thankfully that means I’ve missed all the complaints that are common in the industry.

  8. Dear Editor,

    Thanks for the response. I had typed out about four miles of text in response, quite technical, and I’d like to say sometimes pithy, when I realised it was longer than the article itself.

    I’ll just say that I continue to disagree that the bonus rate cut is worthy of any part of the headline, because whilst it is true, it is meaningless. The movement of an annual bonus rate without the TB and vice versa isn’t a fair comparison. Its worse than saying nothing because to the unitiated it implies something major has happened to their investment, when it hasn’t. It’s very much the same as when the FSA changed the rates of projections recently, which the tabloids reported as “millions lose thousands from their retirement pensions” when in fact they hadn’t lost a single brass farthing. What they had lost, of course, was hope. (pun intended).

    Regards
    Bryan

  9. With Profit = the least transparent investment available to investors. The premise is: Here’s a “guaranteed” bit and we will be forced to amend our investment strategy to maintain it even if it’s to your disadvantage, here’s a bit we vary every day, and here’s what we’ll clobber you for, all while we take extremely opaque charges from your fund. They will cease to exist within a generation. They will not be missed.

  10. Agree with Bryan above – it’s a headline that just means nothing other than wrongly make investors feel they are getting 0.5% when they should be getting 7.9%. 0.5% is not an interest rate it’s more like the dividend. The TB addition represents the capital growth over the time spent in the fund. The total return over the period invested is more important and should reflect something smoothed around what the fund earnt over that particular period.

    If over 10 years the fund had earnt 8% p.a.and the total paid out equalled a rate of return of 0.5% p.a. then that would be a headline perhaps.

  11. Some smoothing!. Actual payments are declining, in spite of good stock market returns. it seems very inequitable.

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