What are Open and Closed With Profits Funds?

Open And Closed Funds

What is a closed fund?

A closed fund is one, which is not open to new business. Investors have a total of £95 billion tied up in closed with-profits funds via endowments, bonds and pensions. Another £332 billion is in funds that are still open for business.

How could I be affected if my fund closes?

These investors linked with closed funds are likely to suffer, as when a fund closes, it typically moves away from investing in shares, and prefers fixed-interest, lower risk assets, such as bonds/cash. As these assets bear lower risk, there is every chance they will yield lower returns, which will ultimately be reflected in the bonus rates distributed to the investor. As these closed funds are no longer competing for new investors, bonus rates tend to be lower than their contemporaries, and in some cases have been completely removed.

Over time, charges related to a closed fund may rise because a life insurance company has substantial fixed costs. These may be spread amoung increasingly fewer people as some are able to escape on MVR-free dates, such as the tenth anniversary of when the policy was taken out. These investors can avoid the enevitable penalty charged to the investor when attempting to cash in their policy, in the form of an MVR, and leave the remaining policy holders with a higher proportion of the costs to pay.

What can I do?

To avoid becoming trapped in one of these closed funds, we would recommend seeking advise from an expert and strongly examining the possibility of investing elsewhere.

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