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Terminal decline of with-profits

On September 1, we requested a fund value on a client’s Standard Life pension plan.

On September 16, we phoned to check another detail on the same plan and found that the fund had gone down by 9 per cent. The reason, we were told, was terminal bonuses had been reduced and so our client’s fund was 9 per cent lower than a fortnight previously.

I do understand the general reasons for this and the fact that, as each year goes by, we lose the benefit of a good investment year from 20-25 years ago, thus reducing the average return over the full term.

My client, however, is confused that, as investment markets improve, his with-profits fund declines.

Trying to explain the intricacies of these products to a typical client is nigh on impossible, particularly as they were sold as “low-risk” and “steady-return” investments.

Over the next decade, terminal bonuses are likely to fall much further as the benefit of the 1980s’ returns fall out of the equation for more recent investors.

The faster that the last with-profits policy matures and this industry is freed from these non-transparent, complex and unwieldy products that puts all the power in the hands of the insurance companies and none to the customer, the better it will be for all of us.

My main concern now is that despite all the obvious reasons why a with-profits policy should never be written again, a few providers still continue to promote it.

Even more frightening is the thought that there may be some advisers still recommending it.

Chris Petrie

Christopher Charles Financial Services,



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Pension Wise — now taking calls…

Those with decent-length memories will recall that in the 2014 Budget statement George Osborne announced the new (and entirely unexpected) pension freedoms. The new rules come fully into force in less than two weeks.


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