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:
Company, Now, 2002, Fall %
Axa, £103,663, £249,532, 58
Clerical Medical, £118,978, £195,031, 39
L&G, £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.
The Financial Tips Bottom Line:
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).
----------------------------------------------------
Ray Prince is an Independent Financial Planner with
Rutherford Wilkinson plc, and helps UK Resident Doctors and
Dentists get the best deals on mortgages, protection and
investments, as well as helping them achieve their
financial objectives. Just visit
http://www.medicaldentalfs.com to get your free retirement
planning guide. Rutherford Wilkinson plc is authorised and
regulated by the Financial Services Authority.
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