If you have a "with profits" pension, or are being advised to invest in one – read on urgently.
A survey by Money Management, an established personal finance magazine, has once again highlighted the sinking payouts to many investors from well known investment brands.
Lets take Standard Life as an example.
Here are the figures based on the Money Management survey. For a saver who has invested £200 per month over 20 years, the fund value from Standard Life would now be £94,752. This is compared to the same saver receiving £243,375 in 2002.
This is a 61% drop!
In the same survey, many other major insurers showed similar falls in payouts. For example:
Now 2002 Fall%
Axa £103,663 £249,532 58
Clerical Medical £118,978 £195,031 39
Legal & General £105,145 £183,921 43
Norwich Union £107,097 £188,777 43
Prudential £124,305 £179,878 31
Scottish Equitable £108,105 £191,510 44
Scottish Widows £97,779 £164,342 41
One of the reasons why this has happened, taking Standard Life as an example again, is that they misjudged the market in 2000. This meant they had to reduce the amount that the fund invested in equities, which in turn led to lower growth on the with profits fund.
On an ongoing basis, the picture is unlikely to improve for those investors who have many more years before taking their benefits. This is because the Standard Life with profits fund has only 21% of its investments in shares, which in the longer term is one of the main drivers of growth.
Another issue here is that £144 billion of investors money is invested in "closed funds". These are funds that are closed to new business, and the survey shows that quite often investors are getting a raw deal with returns.
An example here would be London Life, who turned £200 per month over 20 years into £75,593!
If you add to the mix that there has been a fall in recent years in annuity rates (the amount of pension you receive in relation to the size of your fund), many investors are very worried.
The survey further showed that investors in these types of funds were totally confused as to what to do or what their options are if they find themselves in one of these with profits funds.
Key Considerations:
If you have a with profits pension (or endowment), then do not delay – find out how your fund is performing and then you will be in a position to make an informed decision. You will either decide to leave the money where it is or transfer it to an alternative provider (the latter option requires careful analysis as there may be penalties to transfer the fund).
ACTION POINT
If you would like feedback on this crucial issue, for a limited period we will offer to assess your position and concerns individually for no charge (up to 1 hours work).
If you want to take advantage of this offer, please obtain full details of your policy/policies as soon as possible and contact us, Graeme or Ray, at docden(at)rwplc.uk or 0191 217 3340.
