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The bonuses of contention

There appears to be little for investors to cheer about this year, with stockmarkets widely predicted to remain flat and with-profits bonuses to be slashed yet again.

With-profits investors must brace themselves for further cuts to their bonus rates over the coming weeks as we enter the traditional bonus declaration season.

Unfortunately, this is no longer an annual experience, with most life offices making interim bonus cuts throughout the year. Axa Sun Life has led the way with five interim cuts to with-profits bonds, with the latest just two weeks ago. And its investors can expect further cuts with the company&#39s annual declaration due in March.

Whatever happened to that low-risk investment that was the bedrock of any portfolio? Bonus rates have been on the decline since the mid-1990s despite one of the greatest-ever bull markets at the back end of that decade.

This must beg the question of what happened to the reserving that is supposed to temper the times of falling returns.

In truth, for many life offices, competitive pressure got the better of them and the gains of the late 1990s were paid out to maintain high headline rates for terminal bonuses and encourage new business, despite falling reversionary bonuses linked to falling gilt yields.

Such techniques appear to have been successful, with the sector attracting more than £50bn since January 1999, according to ABI figures.

But does this sector still have a future? It certainly would be a very brave adviser to recommend any new clients to with-profits.

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Guide: how to… communicate with your pension members

Effective communication of your pension scheme is a large part of getting auto-enrolment right. Delivering the same message to all employees is not necessarily the way to go. To assist you with the communication of your pension scheme, we have provided some key areas to think about, such as:

  • What to consider when segmenting your workforce
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