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With-Profits Guarantees - Some Examples |
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- For people with Bonds:
You have £50,000 started in 2002, now worth £60,000, in a with-profit bond, with a current 16% penalty on withdrawals. There is no spot guarantee. However the company allows you to withdraw 7.5% per year without penalty. You could withdraw 7.5% of the original sum (£50,000) as a penalty free income, meaning that £3,750 can be taken each year penalty free.
You have £50,000 started in 1999, now worth £80,000, in a with-profit bond, with a current 16% penalty on withdrawals. There is a spot guarantee. This applies on the 10th anniversary which is 25th May 2009. On this date you could instruct the company to send you all the money back. You will get £80,000. Without the guarantee you would only get £67,200.
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- For people with endowments:
You have guaranteed minimum bonuses that have been applied, however bonuses have now fallen to less than 1%. The prospects for future returns are negligible and the returns from the past can now be taken without reduction, so you decide to take what you have earned before future problems erode the value of your savings programme. If the endowment is an old style conventional plan you may want to sell the endowment and get an enhanced value.
If you have a £50 per month 25 year endowment started in 1990 for example you might now have a plan with an accumulated worth of £20,000 including bonuses which are guaranteed not to be taken away. You may find that you can withdraw all this money without penalty (or you might be able to sell the plan) and judge that this is good value in light of current and future bonus prospects.
- For people with pensions:
As with endowments guarantees sometimes apply on bonuses or at retirement or at some other point. If you have £80,000 in a pension with-profits fund and you are age 59 and your nominated retirement age is 60 then you may find you have a guaranteed pay out at this age. It would make sense if you knew about this in advance and were aware of any clause which may take this guarantee away if you didn’t exercise it.
NOTE/WARNING
These examples are intended to give you an idea of the sort of guarantees that may be available. They are not comprehensive as other examples may also apply. Likewise any guarantee that you may have is only one factor in assessing the worth, both current and future, of any plan you may have. We always recommend, without exception, that you only take decisions or act either to take a guarantee or not, AFTER you have a received a personalised report. You should only act once you have received such a report which has been prepared by a recognised, registered independent financial adviser. To start this process off you can complete the online audit form by clicking the link below. You will then be contacted by one of our affiliate IFAs. All of our IFAs are registered with the FSA
Click here: Online Audit Request
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