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With-profits savers set for more bonus pain in 2013

UK Currency Pound 480

With-profits funds are expected to pay annual bonuses of close to zero in 2013, according to independent consultancy Cazalet Consulting.

Last year, a number of major providers including Aviva, Legal & General and Standard Life either held or cut annual bonus rates for policyholders.

Analysis from Cazalet Consulting shows the average underlying return on the assets backing with-profit policyholders’ asset shares was 9 per cent in 2012. This figure does not take into account tax and charges or the impact of smoothing.

Over the last 10 years underlying investment returns on with-profits funds were 4 per cent.

However, because providers need to hold capital in reserve to support policyholder guarantees, Cazalet Consulting chief executive Ned Cazalet says these investment gains are unlikely to translate into annual bonuses.

Cazalet says: “The impact of life offices needing to cover guarantees embedded in with-profits contracts means that, notwithstanding generally positive underlying investment returns on with-profits funds over the medium to longer-term, bonus rates will remain constrained in most cases, with many providers set to continue to apply reversionary bonus rates of zero or close to zero in the upcoming 2013 bonus declarations for WP contracts with the most onerous guarantees.”


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There are 5 comments at the moment, we would love to hear your opinion too.

  1. I haven’t read the detail of Ned’s analysis, but I have to say I’m disappointed in the headline for this article. How many times are we going to see people bashing with-profit funds whilst ignoring the relative performance … A performance that was achieved whilst also providing a valuable guarantee. I’m sure investors will be fine with the “pain” of another 9% growth next year. I suspect I will be in the minority though.

  2. Self-serving self publicity? What is said is that returns are not geing to be passed on as annual bonus. What is not said is that they will be passed on through terminal bonus.

    Somewhere in the reporting chain here is a key missing ingredient.

  3. It’s all about the medium to long term potential in the end, a choice of volatile uncertainty in markets moving up and down like a yo yo, or a smoothed return over the same period.

    I notice that the article does not mention Prudential, one of the best performing WP funds over many years.

    This article is a bit one sided. I have dozens of clients who opted for the WP route, who over the years have seen their money grow higher than inflation rates and who are happy to see an annual bonus added to their funds rather than a drop in value at the turn of a key in the proverbial market lock up.

  4. Ned Cazalet = stuck record

  5. I sincerely hope that Prudential will offer a ‘fair’ bonus this year after several years of poor ones. My wife’s WP annuity is slowly sinking in value, in spite of good fund performance. It is providing no hedge against inflation, quite the reverse in fact.

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