With profits policies not necessarily the best investment option, survey shows

News - Funds

Written by Ray Clancy

Monday, 15 February 2010 09:41

With profits policies are only appropriate for 11% of clients today and many are not satisfied with this kind of investment, according to a new survey.
A poll of over 600 financial advisers found that just over a quarter of clients, 27%, were satisfied with any with profits policies they hold. Some 70% of advisers said Market Value Reductions are the biggest barrier for clients who might otherwise consider transferring out of their with-profits fund.

They survey by Skandia also found that the value of guarantees, apathy, and being unaware of the potential benefits of a transfer were also cited as problematic for people exiting with profits funds. Some 60% of advisers said that half or fewer clients are aware of their MVR-free exit dates.

‘The initial decision to invest in with profits may well have been a sound one, but times have changed so it is imperative to take another look and see whether the investment is still appropriate or whether a clearer and less opaque proposition would make more sense,’ said Skandia head of proposition marketing Peter Jordan.

‘All investments should be reviewed regularly to ensure they remain in line with the needs of the individual. Given the changes made to with profits funds over the years and the length that some of them have been held, this need to review is paramount but it needs to be balanced and objective,’ he added.

‘Importantly, there will be an opportunity coming up for many clients to exit with profits funds without an MVR and advisers will be keen to make sure their clients don’t miss this opportunity if it is appropriate for them,’ he explained.

Skandia recently launched a with profits bond analysis tool to help identify penalty free exit opportunities and offer performance comparisons with any combination of alternative tax wrappers.

According to Skandia some £40 billion of with profits bonds were sold at the peak of the market, between 1999 and 2002, when up to £15 billion of bonds were sold annually.

Policyholders who bought at the peak will soon be able to take advantage of the spot guarantees offered in the contracts, which means there are no market value reductions (MVRs) levied on withdrawals.

As a result UK savers are expected to withdraw £8 billion from with profits bonds during the next three years, taking advantage of 10 year penalty-free withdrawals.