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With-profit bonds finally pay off

Rising returns on with-profit bonds are finally rewarding investors who have stuck with them through recent lean years according to Moneyfacts.

The survey compared the latest with-profit bond returns over various periods based on a single premium of £25,000 and found that over the past five years, with-profit bond payouts have improved continuously.

Average surrender values after two, three, four and five years were all higher than at the corresponding point a year ago.

The average with-profit bond has returned a growth of 21.3 per cent on a three year payout and 35.5 per cent on a four year payout.

Although returns have dropped slightly over five years, the average five year bond is still showing a 23.9 per cent return.

For example, a customer who invested £25,000 into an average with profit bond back in February 2002 and decided to surrender their policy three years later would have received just £25,655.

But by keeping the bond for a further two years it would now be worth £30,999, an increase of 20 per cent.

Investment, Life & Pensions Moneyfacts editor Richard Eagling says: “Even though the stock market has enjoyed a remarkable recovery since the dark days of 2000-2003, ‘smoothing’ has ensured that investment gains have trickled rather than flowed through to with profits investors.

“But after years of waiting patiently, those individuals who kept faith with their with profits bonds through the turbulent investment conditions at the start of the decade are finally reaping the rewards.

“Payouts are starting to rise, terminal bonuses are back on the menu whilst menacing market value reductions (MVRs) have all but disappeared. And for some of the more fortunate investors, even annual bonuses are beginning to climb.”

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