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With-profits is missing link in Field’s proposals

Choice is a stultifier. There more choice there is, the less action there is. So many reports have said so, it must be true. It is certainly my experience.

The answer to the dilemma lies in pure with-profits. The principle of with-profits has endured for 200 years. It is asset allocation at its best but only when it is free from short-term scrutiny.

Examine what has happened even with the poorest performing with-profits funds from 1997 to date. Even with some of the poorer decisions of regulatory intervention, they have still amazed the sceptics because they have actually done what they said they would do on the tin. Done it very effectively.

The secret to success is to go back to basics and the philosophy of pure endowments or capital redemption policies. Modest guarantees and reversionary bonuses, added on a regular basis with annually-costed contracts, would be the refinement that Frank Field’s group need to add to their recipe to take the volatility out of the equation.

The second part of the equation is introduction and timing. Really, the timing could not be better than now. Whereas Frank Field’s actual model needs a change to legislation, a slightly modified application of that model can easily be applied under current legislation, with no increase in National Insurance and no employer or employee levy. Painless and effective.

Even on a 15-year timeframe, which takes out all of those arguments regarding high inflation and extraordinary market performance for the later contracts, we still witness a medium that is unassailable in producing consistent results. True, traditional with-profits concepts where the investor shares directly in the returns to the body undertaking the contract.

Take out the volatility, apply the historically proven formula and retain assets against liabilities, give future guarantees with no surrender and a flexible retirement date, and you will have a contract that will marry in with the basic state pension and restore confidence in the public’s mind.

Terence O’Halloran

Chartered financial planner, Lincoln

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