Why Exit a With Profit Plan? | Exit With-Profits

Why Exit A With-Profit Plan

Bleak Future

Savers with endowments, pensions and bonds invested in with-profits funds have seen payouts on policies plummet. With-profits policies grow in value by having bonuses added each year and on maturity. These bonuses are meant to reflect the performance of the fund. Just five years ago, the average payout on a 25-year, £50-a-month savings endowment was £97,562. Today, a similar plan would mature at just £55,318. When policyholders were sold the plans, they were shown figures far in excess of what they will actually get.

And there are no signs that things will improve. Even though the stock market has risen in the past few years, experts predict that endowment payments will carry on falling. A report from industry professionals at trade body Actuarial Profession, says it expects payouts on 25-year policies to continue falling by around 3% a year, for the next 15 years. This prediction assumes funds themselves will grow by an average 6% a year after tax.

Today's poor payouts can be dated back to the early and late Nineties, when insurers running these funds paid out too much on maturing policies. They had abandoned the basic concept of with-profits, which is to smooth out investment returns by holding back some of the profits made in good years to cover the bad. They also chased higher returns by investing more in shares at the expense of property and safer fixed-interest.

With-profits funds which have little invested in shares are unlikely to give policyholders a decent return for years to come. Shares and property typically give a better return than fixed-interest over the long term. Consequently if you are in a fund with a low amount invested in shares, there would be very little argument for staying put and we would strongly recommend seeking further advice.

Uncertain and Unclear

With-profits plans are uncertain in their nature. They are unable to cope with the uncertainties of the stock market or the modern market due to the fact that they are inflexible. With-profits policies tend to lack transparency. At present, many investors would like to know how much their policy is worth, but until it matures this information is difficult to obtain. Many investors may be hanging on for a terminal bonus which is diminishing rapidly.

The information on this website is to be viewed as general information and does not constitute advice. Views and opinions expressed are those of the individual contributors. Individuals reading the site should not rely on any of the information contained within the site in making any decisions. DMP Marketing cannot be held responsible for any liability suffered by any individual as a result of information contained within the site. In the event that advice or help is required then independent advice should be sought from a regulated independent adviser.