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With-Profits Case Studies |
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Case Study One
Fifteen years ago, investor Alison Clarke decided to take out a "with profits" endowment with Scottish Widows.
She wanted to save for her children's future and was hoping her policy would pay out around £34,000 when it matures in five years time.
But that is now looking highly unlikely. In fact, Alison could end up with only half this amount.
Alison told us: "We have paid into this policy through good times and bad.
"There has never been any suggestion that things were doing dismally, and yet it feels like we have ordered a fridge and been given a cool box."
The bottom line for Alison is: with five years until her policy matures, and £3000 worth of premiums still to pay, should she continue? |
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Case Study Two
John Buchan, retired investor, invested in seven with-profit bonds between 1997 and 2002 using companies such as Friends Provident, Scottish Mutual and Prudential.
He had a total of over £250,000 in these areas. To start with everything was rosy with returns of about 9% per year. However in recent times John and his wife have become increasingly alarmed by their holdings and how they are faring.
“We liked the idea that was presented to us all those years ago: safe, steady investments from highly reputable companies. Higher returns than we could get from the bank or building society without any greater risk.
No-one told us about Market Value Adjusters or that we couldn’t get our money back without penalty under certain conditions.
Getting reliable information from some of the companies has been nigh on impossible and understanding what we have is very difficult.
We also understand that the tax position, the way these bonds are taxed, has changed since we first bought them and we have been disadvantaged as a result.
Also the ownership of these bond companies seems to change every 5 minutes. What we want is a simple investment with low risk and which we can understand and see clearly how it is doing. With-profit bonds are not the answer going forward but getting out of them is not easy”.
John has seen the returns on some of his bonds fall to 0% in many of the recent years (even in some of the good years for investments overall) and realises that to move the Bonds he may have to pay penalties.
So he is penalised if he stays with the Bonds and he is penalised if he moves. A classic case of heads you win, tails I lose.
John needs help. He needs an audit of his bonds done and some independent advice helping him understand which of his bonds he should consider moving and which he should stick with. |
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Case Study Three
Martin Hardyman was never much interested in pensions. However in 1988 (when he was just 22) he took out a pension with Pearl Assurance on the advice of a Pearl representative, this included moving out of the State Second Tier scheme (known as SERPS at that time) a process called “contracting out”.
Today Martin is 42 and has built up a pension pot totalling £70,000, with some personal contributions he has added in from his own sources.
He is still invested 100% in with-profits.
Why? Because this is what the sales representative ticked on the form 20 years ago when Martin couldn’t have cared less about pensions.
“Why am I in with-profits? I have no idea: I just went along with the advice at the time".
However in reviewing this the other day with my new IFA he asked me what I knew about the fund and why I was using it. I felt pretty silly to be honest because it dawned on me I had an asset of £70,000 which represents my future prosperity and I have no idea what it is or why I am invested like it. I guess the whole subject just made me switch off and the term with-profits seemed so alien. Anyway we have now started to look at this and review exactly what I have got in this pension and if it is really sensible to have so much money in a fund which actually has done pretty poorly for me over the years.”
Martin is now looking to get a more diverse and modern approach to his pension using better fund choices more suited to his age, circumstances and requirements. |
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