Endowment Check - Endowment News

Friends Provident cuts with-profits bonuses

Sat, 19 Jul 2008 00:00:00 +0100

Friends Provident cuts with-profits Article historyFriends Provident angered policyholders yesterday by making dramatic cuts in payouts on its with-profits pension and life plans. The insurer said falling share and property prices had forced it to act.
Analysts said the decision was a signal that other insurers would need to cut back on with-profits payouts and leave millions of people with smaller pensions than they had expected.
Prudential and Norwich Union manage the largest funds, along with the closed-fund operator Pearl. They are also expected to have to downgrade the value of their funds and cut bonus payouts.
With-profits was once the most popular type of life and pension policy. Insurers paid annual bonuses and a final bonus when a policy matured from profits held back during years when investments performed well. Final bonuses could double the value of a policy.
The stockmarket crash of 2003 wiped out the profits of many funds and sent others into reverse. With-profits endowments, used to purchase homes, were the hardest hit and caused a scandal that cost the industry £11bn.
In recent years most financial advisers have directed their clients away from the funds, claiming the opaque calculations that determine payouts undermined confidence in their long-term benefit.
Declines in world stockmarkets and commercial and residential property have pushed down the value of Friends Provident's with-profits fund by more than 7% since January. A spokesman said the fund needed to increase by 8% to maintain the current level of payouts. The group is keeping regular bonuses on life and pensions policies on hold, but final bonuses are being cut - on its main with-profits fund by more than half.
Someone with a 15-year unitised pension plan in the main fund will receive a regular bonus of 4%, but their final bonus will be slashed: it would have been 18.7% if the policy had matured in January but would now be just 2.1%
Those with a 25-year conventional life policy will be paid a final bonus of 17.5%, down from 40% in January. Their regular bonus will remain unchanged at 0.25%.
Someone who paid £50 a month into a 25-year conventional life policy will get a final payout of £32,885, down from £36,425 if it had matured in January.
Brian Harrison, Friends Provident chief actuary, said: "Bonus rates announced in January of this year reflected investment returns over the whole term of the contract.
"To maintain payouts at January levels, we needed annualised returns of around 8% on longer-term policies. However, the estimated return on the fund over the first six months is minus 7.25%.
"Accordingly, to ensure we are fair to all customers ... we need to reduce bonus rates now to reflect the fall in underlying investment values".
Source - Phillip Inman The Guardian, Saturday July 19, 2008

Endowment Check since 2001

Sat, 19 Jul 2008 00:00:00 +0100

We are now in our 7th year of providing a policy valuation services for endowment policy holders and IFAs alike.
The volatility in the investment market and the continuous danger of further reduction in bonus rates has brought even greater uncertainty about future maturity values of endowment with profit policies. The financial press constantly reports about bad performing endowments and urging with profit policy holders to keep a sharp eye on the value of their policy. Unfortunately, most of the time figures shown relate to policies which have already matured or on projection letters from life companies.
While past maturity statistic of policies gives us a very good picture of how those polices have performed, projection letters from life companies are not much better as they only provide us with an idea of what the maturity value of a policy might be at certain interest rates, normally 4%, 6% and 8%. But how helpful are those figures? One gives us information about policies which do not exist anymore, while the others makes assumption using projection figures which have nothing to do with the actual maturity calculation used by the life company at the end of a policy term.
Over the years EndowmentCheck has given thousands of policy holders and IFAs the opportunity to calculate endowment polices based on actual bonus rates using the same method as life offices use when a policy matures, thus providing an accurate picture of what the payout will be when bonus rates are maintained.
EndowmentCheck’s maturity calculation is not only used by UK endowment policy holders. An average of an estimated £350Mio worth of endowment policies are sold via the second hand market each year to international investors, mainly in Germany. Those investors are not interested in projection figures provided by their UK life companies, they want to know the real performance of their policy and tend to recalculate the maturity of their policy every time a bonus rate change takes place.

With-profits - a decade of losses

Fri, 18 Jul 2008 00:00:00 +0100

Some with-profits policy-holders have actually lost money over the past 10 years, research reveals.
Savers who have put £50 a month into a ten-year policy with London Life, investing £6,000 in total, got back £5,544, figures from Money Management magazine show. This is an average 1.6% a year.
Royal Life policyholders have lost 0.6% a year, while a Scottish Life policy has grown by just 0.1% - giving investors £41 profit over the whole 10-year period. All these are closed to new business.
The figures are based on a policy taken out by a man coming up to his 30 birthday paying in £50 a month for ten years to May 1 this year.
With-profits plans were designed to smooth returns for investors through good and bad times, and to protect them from the ups and downs of the stock market.
Shares have returned an average 5.5% a year over the past ten years, according to Barclays Capital, while these insurance companies have managed to lose money.
On plans which have run for 25 years, some policy-holders have made less than 5% a year, well below the 8.8%-a-year average annual return on UK shares and even less than the 5.5% average a year on government bonds.
The average payout on a 25-year endowment was £45,187, compared with £65,776 five years ago. Ten years ago savers with similar policies enjoyed £105,540, more than double today's sum.
Daily Mail - 16 July 2008

With-profits investors disgruntled in market turmoil

Wed, 9 Jul 2008 00:00:00 +0100

Discontent among with-profits policy holders has risen sharply in the past year and many intend to stop investing in the products, according to Managing Partners (MPL).
Research by the investment management company shows 28% of 45-54 year olds say they intend to stop investing in their with-profit policies, an increase of 9% from similar research conducted last year.
This generation has the highest proportion of policy holders with more than one in three holding a with-profits policy.
Meanwhile, 19% of 35-44 year olds holding with-profits based products no longer plan to invest in them.
MPL says ownership has declined this year among those investors who were most disillusioned last year, the over 55s, of which only 25% now own a with-profits policy, compared with 28% a year ago.
The research also found a very low level of penetration of with-profits based products among those aged 35 and under. Only 7% of 25-24 year olds and 4% of 18-24 year olds, have a with-profits policy.
“Another year of poor financial markets and disappointing bonus announcements has pushed with-profits policies another step closer to their inevitable demise,” says Jeremy Leach, managing director at MPL.
“Those people in the older generation will have bought endowments to pay off their mortgages and will be bitterly disappointed by the shortfalls they have been left with. But the high degree of disillusion among the younger generations also demonstrates that the with-profits concept has no future.”
Wednesday 9th July 2008 - Sarah Griffiths

With-profits woes increase for investors

Fri, 4 Jul 2008 00:00:00 +0100

The thorny issue of endowments and with-profits has once again hit the headlines, with MPs due to grill life companies. But what does the future hold for with-profits?
With the Treasury Select Committee seeking answers from with-profits providers in the next six months and Prudential having pulled out of the reattribution of its inherited estate - life companies are once again enduring more criticism for their controversial but once-popular investments.
New research from investment management company Managing Partners Limited (MPL), reveals that a staggering 64% of investors in with-profits investments are unhappy with their current performance and more than one in four, 28%, are very unhappy.
But, despite this, 65% still plan to carry on investing in them, while 25% - some 2.4m people - intend to stop.
Philip Scott, This is Money,4 July 2008

What now for with-profits windfalls?

Mon, 30 Jun 2008 00:00:00 +0100

Four million Prudential policyholders will be told by letter in the coming weeks that they should not, after all, expect cash payments from a proposed carve-up of the £9bn 'inherited estate' locked up in the insurer's with-profits fund.
Estimates had put potential windfalls at between £600 and £1,200 per policyholder.
The blow follows months of dithering on the part of the insurer and its advisers. The Pru's with-profits fund, which has performed well for its bond, endowment and pensions investors, is worth a massive £80bn.
Of this, £9bn is not immediately required to pay bonuses to savers - and is known as the 'inherited estate'. This was the money up for grabs.
The company, led by chief executive Nick Prettejohn, wanted to use it for its own purposes, but because policyholders had a claim to 90% of any profits that derived from the cash, the company would have had to buy policyholders' rights by offering windfalls.
Richard Dyson, Mail on Sunday 29 June 2008 What now for with-profits windfalls?

Bad returns for Endowments

Sat, 10 May 2008 00:00:00 +0100

A recent survey by Money Management magazine reveals the worst-performing endowment policy returned a pitiful 3.9% a year for the last 25 years, falling short of the interest you would have earned on many standard savings accounts.
So should you ditch your endowment or stick with it? It's not an easy choice, but here are some points you should think about before you decide whether the time has come for you and your endowment to part ways. (Of course, not all endowment policies are linked to mortgages.)
Calculate a possible maturity value for your endowment. Much of your decision depends on how you think your policy might perform from now on. Returns from with-profits endowments are paid in the form of an annual and possibly a terminal - or final - bonus. Bonus rates are set each year at the discretion of the provider.
But that means it's difficult to estimate future growth as you don't know what bonuses will be declared in the coming years. You need to think about the potential value of your policy at maturity if you were to keep it.
The projections you receive from your provider are pretty useless for that, as they bear no relation to the level of bonus you might receive. Some of the worst-performing with-profits funds, for example, are currently paying bonus rates of 0%, whereas most projections are based around 6%.

Full article by Jane Baker - Should You Ditch Your Endowment?

Get more for your endowment:

Fri, 9 May 2008 00:00:00 +0100

Bonuses and selling
Millions of homeowners have been left disappointed by endowment policies that will struggle to pay off their mortgage. But those considering ditching the investment should look at selling their policy rather than simply surrendering – as demand for traded endowments means they could receive much more.
Bonus Rates
Most providers have continued to add reversionary bonuses to their with-profit plans at similar levels to last year. However, a few life offices, for example, Legal & General and Wesleyan improved their annual bonuses rates. For terminal bonuses, which normally account for a substantial part of the final maturity payout, the results have been mixed. On typical 25 year term policies Clerical Medical and Norwich Union reduced their bonus rates, whilst Standard Life rates increased (assisted by the continued distribution of their inherited estate which started in July 2007). For homeowners with endowment-backed mortgages, the situation may be less than clear. When their endowments policies were originally set up years ago the expectation was that interest rates and investment returns would be higher in nominal terms.
Whilst the lower mortgage rates of recent years have been welcome, the correspondingly lower investment returns (compared to the expectation given when they first took out their endowment) have meant that the maths inherent in an endowment backed mortgage doesn't work any more.
As times and expectations have changed, an increasing number of policyholders are being informed that their policy may not meet its target. Money Management, reported that at the end of 2003, 37% of policies were in the red zone (they needed to grow more than 8% per year to achieve their target) however in September 2007 that figure had grown to 59%.
This is Money 6 May 2008 - www.thisismoney.co.uk/mortgages/endowments/article.

Should you ditch your endowment or stick with it?

Fri, 2 May 2008 00:00:00 +0100

Do you still need the endowment?
Is the policy being used to repay your mortgage? If you decide to surrender (cash in) your policy, you may need to arrange life insurance elsewhere.
Calculate a possible maturity value for your endowment
Much of your decision depends on how you think your policy might perform from now on. Returns from with-profits endowments are paid in the form of an annual and possibly a terminal - or final - bonus. Bonus rates are set each year at the discretion of the provider. To work out an estimate for a maturity value, ask your provider for the following information: The last three year's annual bonus rates. The current maturity value of policies which ran for the same term as your policy, but are maturing now. The terminal bonus, if any, on similar maturing policies. If the last three year's bonuses have been 0% and maturity values including any terminal bonus are low, it's a reasonable assumption that your policy may not fare well either.
If you're good at number crunching, you can ‘guesstimate' how your endowment might grow to maturity based on a range of different assumed growth rates, as well as the bonus rate history and a range of estimated terminal bonuses. If your endowment has a low exposure to shares, then the prospects for future growth could be pretty limited, and it may be time to think about surrendering it. If you have a policy which is no longer sold to new customers, pay close attention to its underlying assets. Meanwhile, a stronger endowment might have an EBR between 50% and 70%.
Is there a Market Value Reduction (MVR)? The MVR is like a withdrawal penalty that may come into play if you choose to surrender your endowment early. That means, the bonuses paid to investors were higher than the actual returns achieved by the with-profits fund itself. If you're still unsure what to do with your endowment, it's important to speak to an independent financial adviser.

With Profit Endowment policy holders see reduced annual bonuses

Mon, 28 Apr 2008 00:00:00 +0100

Recently, many of the UK's leading insurance companies announced reduced annual bonuses for With Profit Endowment policy holders, yet another blow for homeowners who took out endowments during the 1980s and 1990s, as they will now see increased shortfalls on their mortgage liabilities.
Some of the big names that have declared reduced annual bonuses are Scottish Widows, Friends Provident, Norwich Union and Scottish Life, while some have bucked the trend, and increased payouts -- these include Standard Life, Prudential and Legal and General. But unfortunately for many endowment policy holders, payouts are down.
Annual bonus declarations vary from insurance company to insurance company because they are influenced by a number of factors, which include past investment performance, previous bonus announcements and the financial strength of the company.
For example, those who have policies with Scottish Widows, Friends Provident, Norwich Union and Scottish Life will see reduced annual bonuses in 2008 compared with the previous year. Based on a male policy holder with a 25 year endowment policy who was aged 30 when he took out the policy paying £50 per month, a Scottish Widows endowment would see a reduction of £442 between 2007 and 2008. A Friends Provident policy would see a payout of £37,540 in 2007 reduced to £36,425 in 2008, Norwich Union's payout would decrease by £2,776 and a Scottish Life policy would decrease by more than 8 per cent -- from £37,132 in 2007 to £34,196 in 2008.
Where a policyholders' endowment continues to under-perform, the insurance company should write to them, warning them of the potential shortfall. However, there are things that can be done to address this potential shortfall before it is too late.
Make a complaint -- Many endowment policy holders have successfully won complaints cases against insurance companies because they say the potential risks of endowment were not explained properly to them when they took the policy out. The FSA has more information about endowment complaints.
Surrender -- Because of the bad press that endowments have received over the last 10 years or so, many policyholders are trying to get rid of them, and will often just settle for the surrender value offered to them in the hope of cutting their losses and getting back cash.
Sell - There is now a fairly healthy secondhand market for endowments and those who have sold their endowment policy on to an investor have found that they got a lot more than they would have if they had settled for the surrender value -- up to 45 percent in some cases. The reason is, potential investors see endowments as an attractive investment, due to relatively low risk investment strategy and partially guaranteed return.
But the best advice is to get advice; if you are uncertain about what to do, seek independent advice from a specialist.

Bonus Rate increase on Royal London with-profit endowments

Thu, 10 Apr 2008 00:00:00 +0100

Royal London, the UK’s largest mutual pension and investment company, has increased final bonus rates on some of its with-profits endowment policies for 2007 to 25 per cent.. The final bonus rate of Royal London's 10 year regular premium endowments has increased by 13.9 per cent to 25 per cent, while the payout on a £50 a month, 25 year endowment maturing is £48,773; this represents an annualised investment return of 8.4 per cent or in real terms, taking into account the effects of inflation, 4.9 per cent.
For pension plans, final bonuses have increased across the board so that for a 10 year pension plan, the final bonus has increased from 6.8 per cent to 9.1 per cent and for a 25 year term pension policy, the final bonus has increased from 87.3 per cent to 88.7 per cent - Source: Fair Investment Company

Royal London holds bonuses steady

Tue, 18 Mar 2008 00:00:00 +0000

ROYAL London yesterday announced its with-profits policy bonuses – including those underwritten by Scottish Life – which it claimed are among the best in the market. Royal London's annual bonus rate for 2007 is held at 0.5 per cent for regular and single premium polices, the same as in 2006. The benchmark payout on a Royal London £50-a-month, 25-year, with-profits endowment which matured on 1 January, 2008, is £48,773. This figure represents a real return of 4.9 per cent per annum.
Royal London said the comparative payout from rival insurer Aviva would be £47,045 and £46,686 from Prudential. Stephen Shone, the group finance director, said: "We have continued our policy of bringing payments gradually into line with asset share, while following the smoothing policies set out in our principles and practices of financial management." - Source: The Scotsman

Shamed: the ten worst endowments

Sun, 16 Mar 2008 00:00:00 +0000

Endowments managed by Resolution and Pearl, which bought up several closed-life funds, dominate the list of the worst performers from Money Management magazine. While Cowdery has made millions from his pursuit of these funds, policyholders have consistently suffered returns lower than the open-fund average, even as the stock market boomed. In some cases, the paltry returns stand in stark contrast to other Resolution funds. Phoenix Assurance, owned by Resolution since September 2004, has paid out an astonishing £317,800 on typical 25-year maturing endowment policies, reflecting an annual growth rate of 20%, or 1,168% more than the Life Association of Scotland policy.
Resolution-owned National Employers Life, with an annual growth rate of 11%, and Swiss Life, at 9.4%, also topped Money Management’s list of 25-year policies. The worst 10-year policy, Pearl-owned London Life, fell by 1.6% a year while Resolution’s Sun Alliance & London Assurance dropped 1.2%, Royal Life fell 0.6% and Scottish Mutual declined 0.4%. “The problem, as always for with-profits funds, is transparency. Investors need to look at the equity content of their with-profits fund. This is the best indication of the long-term growth prospects of the fund.” MVRs were introduced during the bear market to discourage people from leaving the funds before maturity. “Resolution is not making any money out of either fund.

Outsourcing helps Prudential raise operating profits

Fri, 14 Mar 2008 00:00:00 +0000

Pensions and insurance provider Prudential PLC has announced that its operating profit for 2007 was up by 25 percent. The company has outsourced large parts of its IT and administration operations to Capita.
UK retail new business saw profits up by 17 percent. Prudential wasn’t shy to admit that the retirement market is in rude health, describing it as offering “significant long-term sustainable growth opportunitues”. In November 2007 Prudential signed a 15 year outsourcing deal with services company Capita worth £722 million. Capita provides Prudential with customer service, policy administration, new business processing and IT support as part of the deal.

Windfall wars reach bitter climax

Sun, 2 Mar 2008 00:00:00 +0000

Prudential
Bosses at insurance giant Prudential will face hostile questioning from MPs next month over delays in deciding what to do with an £8.7bn surplus in its massive with-profits fund. The delays have meant that hundreds of thousands of Prudential's with-profits policyholders have already lost the chance to benefit - with thousands more falling out of the net each week. The Treasury Select Committee, chaired by MP John McFall, has said it will investigate how with-profits funds pay out surpluses built over decades. In the Pru's case, 4.5m policyholders who have with-profits bonds, endowments or pensions have a claim to the cash.
Last March, Pru bosses announced they were looking at releasing this cash, which would involve the company taking control of the money and compensating policyholders with cash payments. It named lawyer Peter Bloxham as the policyholder advocate to safeguard savers in the process. Having raised hopes, the Pru, led by chief executive Nick Prettejohn, has since been silent. Bloxham has not yet been formally appointed, though he expected to be well into his job by last autumn.
An estimated 250,000 Pru plans have matured since last March and longstanding policyholders have seen their hopes of sharing the money disappear. When Financial Mail highlighted this issue last month, they received more than 1,000 emails from Pru policyholders complaining about the insurer. These policyholders, especially those whose plans mature soon, will be pleased that Prettejohn must shortly face McFall's notoriously rigorous interrogation. The Pru's delay means it is highly unlikely that arrangements will be finalised in time to include the Norths. The company will say only that an announcement on whether the deal is to go ahead will be made by summer.

Norwich Union
Norwich Union, which is in the process of carving up a £5bn with-profits surplus, is privately fuming at the Treasury Select Committee's decision to investigate the distribution of surplus funds by the insurance industry. Publicly, however, bosses claim they welcome the chance to make their views public. In Norwich's case, 1.1m with-profits policyholders have a stake. Some of the money has already been committed to savers in the form of bonuses to be added to their policies over the next three years. But about 60% of the sum remains up for grabs. The insurer has tabled an offer stating what it would be prepared to pay policyholders as one-off cash 'windfalls' to get its hands on the money. But policyholder advocate Clare Spottiswoode, whose job is to represent policyholders, said the offer was not good enough. In coming days she will respond to a second, apparently improved, NU offer.
But the stalemate between her and the insurer is likely to drag on at least until the Treasury Committee's hearing is well under way in the summer. This will be good for policyholders, claims Dominic Lindley of Which?, the consumer lobby group. 'The main delay to the deal is NU's failure to make a reasonable offer and to treat customers fairly,' he says. Lindley hopes the MPs' involvement could publicise the issue, forcing NU executives to consider raising any offers to policyholders. But there remains a risk that NU's parent, Aviva, will lose patience and walk away from the deal, meaning policyholders will get nothing. Aviva has indicated in the past that it has considered such a retreat. The bonuses, expected to boost value by 10% in total, will be phased in over three years, but thousands of savers whose plans mature this year or next will miss part of their payout. - source: Mail On Sunday

Pru with-profits 'bonuses up'

Wed, 27 Feb 2008 00:00:00 +0000

Prudential said that it was adding £2.7 billion to the value of its customers with-profits policies following a year of strong investment returns for the fund. The insurance giant said its with-profits fund returned 7.2% during 2007, despite the volatility seen in world stock markets and the problems caused by the global credit crunch. As a result it is increasing the majority of annual bonuses paid on the policies by 0.25%, giving an annual bonus of 3.5% for a personal pension, and one of 1.2% of the sum assured plus 2.5% of previous bonuses for mortgage endowments. Overall, Prudential said £1.2 billion was being added to policy values through annual bonuses, while £1.5 billion was being added in final ones.
As a result, someone with a with-profits pension maturing this year into which they paid £200 a month for 20 years will receive a final payout of £117,469, broadly in line with a payout of £119,401 if a policy of the same term had matured last year. A policyholder with a mortgage endowment into which they paid £50 a month for 25 years will have a final maturity value of £46,686, down slightly from £49,492 for a 25 year policy maturing in 2007. At the same time, pensioners with complex with-profits annuities will see their income rise by 11%, although this excludes the former Equitable Life with-profits annuitants who were transferred to Prudential at the end of last year.
With-profits are long-term savings policies that aim to smooth out investment volatility by holding back some returns during good years to payout in bad ones. The products are often taken out as a pension or an endowment to repay a mortgage. The group said all of the nearly 15,000 mortgage endowments maturing this year would meet their repayment target, with average surpluses of £5,500. - Source: www.inthenews.co.uk

Endowments to miss their target by a mile

Tue, 26 Feb 2008 00:00:00 +0000

Mortgage endowments are on the slide again, as recent volatile markets take their toll on returns from with-profits policies.
Many companies that have declared payouts so far this year, such as Norwich Union, Friends Provident, Scottish Widows and Clerical Medical, have announced cuts to their payouts. Homeowners relying on with-profits contracts to settle their mortgages or provide a pension will be left facing ever bigger black holes. Standard Life bucked the trend by boosting mortgage endowment nest eggs slightly compared with last year. However, its 2007 payouts lagged behind those of many other companies and will continue to disappoint, despite the small fillip. Members of Norwich Union's CGNU and Culac funds received an unexpected eleventh hour special bonus when the company announced that it would be topping up their policies for the next three years via a distribution of its inherited estate.
In the light of dwindling returns, with-profits investors should carefully consider whether this method of saving for a pension or repaying a mortgage, or just sitting on investment bonds, is delivering them good value. The companies blame the credit crunch and roller-coaster markets for their poor performance. At Norwich Union, for example, the CGNU and Culac with-profits funds last year achieved a return of 5.4 per cent, well down on 11.9 per cent in 2006 or 17.7 per cent in 2005. Similarly, Standard Life has seven funds, each with different asset mixes, which last year produced between 5.3 per cent and 6.7 per cent. The figure at Scottish Widows was 5 per cent.

You should carefully study the annual return you are getting, what the policy will provide on maturity and how much it will fall short of its original target - check your policy now by clicking here - Source: www.telegraph.co.uk

L&G shifts £3bn of with profits money into bonds as markets plunge

Thu, 21 Feb 2008 00:00:00 +0000

Legal & General moved £3 billion in its £30 billion with profits fund out of equities and property into bonds last year in a bid to sustain returns. Nevertheless investment returns in L&G's with-profits fund fell by more than half in 2007 to 5%, making it the latest insurer to announce plunging returns. The company reported an investment return of 5% for conventional with-profits life policyholder compared with 12% in 2006. Scottish Widows last week and LV= yesterday both reported similar falls.
In an attempt to boost returns, Legal & General switched more than £3 billion between asset classes, moving around half from commercial property and half from equities into fixed interest in an attempt to boost profits for its 800,000 with-profits policyholders. Legal & General announced with profits bond sales increased by 25% in 2007, with total bonuses up 12% compared with 2006
According to the group, the proportion of endowments classed as being in the 'red' category over concerns that performance targets may be missed fell from 40% to 28% last year. Annual bonus for endowments increased from 0.75% to 1.25% on the sum assured.
Mark Gregory, the insurer's with-profits managing director, said: ‘With-profits has proved its strengths for policyholders this year in volatile investment markets.’ - Source: www.citywire.co.uk

Legal & General With Profits sales up

Thu, 21 Feb 2008 00:00:00 +0000

There was also an investment return of 5 per cent gross for Conventional With Profits Life policyholders, according to the company.
It stated that 25 year endowments maturing in March 2008 will hit their target amount with an average surplus of almost 40 per cent and green and amber endowments would be up to 72 per cent (up from 60 per cent in 2006.
Legal & General With Profits managing director Mark Gregory said: "With Profits has proved its strengths for policyholders this year in volatile investment markets. Endowment customers with maturing policies continue to benefit from strong returns and 25 year policies maturing in March 2008 will receive an average surplus of almost 40 per cent.
"The increase we have seen in sales this year emphasizes the attractions of a strong With Profits provider for investors with a cautious attitude to risk who want long-term real returns. "Our active approach to managing the fund meant that in 2007 we switched over £3bn between asset classes to deliver strong investment returns for holders. We are fully committed to With Profits and have structured our business to support these products." Legal & General has approximately 800,000 With Profits policyholders and approximately 29,000 endowments matured in 2007 - Source: www.ftadvisor.com

Return on Widows’ with-profits fund halved

Thu, 14 Feb 2008 00:00:00 +0000

Scottish Widows earned a 5% return on its £17bn with-profits fund last year, half the return in 2006. The insurer is leaving bonus rates on all its policies unchanged. That means it still pays no annual bonus for holders of the popular with-profits bonds, a stance criticised by some advisers.Widows stresses the payment of final bonuses - added only to maturing policies - which sees the 10-year bond rising from £13,136 to a pay-out value of £14,747, which equates to a rise of more than 12%.
Unlike similar information provided by rival Standard Life, Widows does not compute the annual return on such investments, nor does it distinguish as clearly between value added by contributions, the market, or bonuses. The insurer said £50-a-month 25-year mortgage endowments maturing now would pay out £38,136, which was £4825 above the target. It gave no indication to what extent current endowments are on target. It said a 20-year £200 a month personal pension would pay £97,328. Regular (annual) bonus had been added to 441,000 unitised and 239,000 conventional with-profits policies. Annual bonuses of 2% are again paid on endowments and 2.25% on post-1998 pension plans.
Kevin Doerr, with-profits actuary at Scottish Widows, said: "With-profits policies have performed well in a year of volatile investment markets. This reflects the diversified underlying asset mix and smoothing, which is an important feature." - Source: www.theherald.co.uk

NU policyholders to share £2bn payout

Sat, 9 Feb 2008 00:00:00 +0000

NORWICH UNION will boost the savings of one million of its with-profits policyholders by an average of 10 per cent after its decision to share out £2.3 billion of its estimated £5.4 billion inherited estate.These “orphan assets” represent the surplus in two of the insurer’s with-profits funds over and above what is needed to carry on its business and meet its liabiities. The two funds are the CGNU Life fund and the CULAC fund.Policyholders will receive 90 per cent of the £2.3 billion surplus, with the insurer’s shareholders taking the remaining 10 per cent. To qualify for a payout, policyholders will need to have held a with-profits savings product, such as a pension, endowment or with-profits bond, on January 1.
A Norwich Union spokesman says: “Qualifying policyholders will receive, on average, a boost to their investment of about 10 per cent. The precise amount will depend on the size and type of investment.” For example someone who had invested £30,000 in a with-profits bond in 2001 would receive a bonus of £4,500. The holder of a 25-year endowment policy taken out in 1985 with a £50 monthly premium can expect a boost of £3,735.
This will be good news for the hundreds of thousands of people who have taken out Norwich Union endowment policies to repay their mortgage, many of whom are currently facing shortfalls. The insurer estimates that the bonus payouts will move about 50,000 of these endowments from red status (very unlikely to pay off the mortgage) to green (on target to clear the debt at the end of the mortgage term). The payout will be made in three stages over the next three years, meaning that policyholders will have to stay with Norwich Union until 2010 to qualify for the full payout. They will receive a third of the bonus this year, a third next year and the final payment in 2010. The distributions will be made to policyholders when they receive their annual statements, which will be at different times of the year, depending on when they took out their policies.
A Norwich Union spokesman says that the company will be writing to qualifying policyholders within the next couple of weeks to give them details about the size of their bonus payments. That still leaves about £3.1 billion of the inherited estate in the insurance company’s coffers. Norwich Union wants to use the money to underwrite future business and is planning to make a separate cash offer to policyholders if they are prepared to renounce any claims on the remaining £3.1 billion. However, consumer groups representing policyholders have argued that Norwich Union should distribute more of its orphan assets to policyholders and not hold back such a large proportion. Dominic Lindley, of Which?, the consumer organisation, says: “While this may seem like a generous gesture by Norwich Union, the £2.3 billion isn’t even half of the inherited estate.” - Source: www.timesonline.co.uk

Endowment holders must prepare for payouts slide

Sun, 3 Feb 2008 00:00:00 +0000

MORTGAGE endowment customers should brace themselves for more depressing news as recent stock market turbulence takes its toll on payouts from with-profits investments.It is vital if you are hoping to repay your mortgage using an endowment that you open correspondence from your insurance company and immediately address any problems.
Two out of three of the big companies to have announced their bonuses so far this year, Norwich Union and Friends Provident, cut payouts compared with last year. Standard Life has bucked this trend by raising maturity nest eggs slightly. However, its policies are already significantly lagging those of its major competitors.At Standard Life, for example, a 25-year £50 monthly mortgage endowment will mature this year at £37,763, compared with £36,950 last year.
But at Norwich Union, the same customer will pick up closer to £40,000 depending on which fund he is invested with. The main CGNU fund will pay out £45,911 compared with £46,829 last year; the old Commercial Union fund (CULAC) will produce £39,321 (down from £43,697) and the closed Norwich Union fund £39,357 (down from £42,133).
Payouts at Friends Provident make even more depressing reading. Its 25-year endowments will mature this year lowest of all three at £36,425 (down from £37,540).
And policyholders with these three giants will be sobbing even more heavily into their handkerchiefs if they remember the £50,000 nest eggs picked up by Prudential customers last year. The Pru will not announce this year's payouts until later this month.The companies blame the credit crunch and rollercoaster markets. At Norwich Union, for example, the CGNU and CULAC with-profit funds achieved a return of 5.4%, well down on 2006's 11.9% and 2005's 17.7 %. Similarly, Standard Life has seven funds, each with different asset mixes, producing between 5.3% and 6.7%.
Indeed, insurers argue that payouts maintained despite market volatility prove the value of with-profit investments. These funds invest in a basket of assets, including shares, commercial property, fixed interest and cash. They also allow insurers to use money held back in good years to smooth over the impact of rough years on the market.
Norwich Union senior actuary David Riddington said: "When you consider what a volatile year this has been on the stock market, payouts have held up well. Share prices have been volatile, there has been a great deal of uncertainty, and commercial property has not performed significantly. Against that background policyholders have done well." The difficulty when assessing the accuracy of these words is that the with-profits market has become increasingly fragmented. Millions of policyholders with the likes of Pearl, NPI and the Resolution Life companies of Scottish Mutual, Alba Life, Scottish Provident have received no annual bonus for years. It looks unlikely that they will in the future. For this reason Ned Cazelet of Cazelet Consulting pointed out that from 2000 to 2006 the average return across with-profit funds has been 3.9% before charges and tax. He said: "If we deduct 1% charges and some tax, that gives us a return of somewhere between 2% and 3.5%. Customers have to ask themselves what growth assumptions were used when they took out an endowment to buy their home or save for a pension. You can be sure it was a lot higher, and could have been anything between 7% and 11%."
The picture isn't much better when it comes to pensions, with payouts all slightly down. At Standard, for example, a 20-year, £200 monthly premium pension will mature this year at £92,735 compared with £110,818 at CGNU and £98,858 at Friends Provident. Standard's Jim Black admits its results are disappointing. He said: "We are still suffering from the decision to move a chunk of our investments out of equities and into gilts in 2004. It means we will regrettably appear again towards the bottom of any performance table." The position with five-year investment bonds is slightly better, with Standard Life turning a £10,000 investment into £15,833 compared with £15,437 at NU. Indeed, there is little difference between the payout over five and 10 years at NU when it comes to bonds, which Riddington puts down to the dire performance of stock markets at the start of the millennium. He said: "If you bought a bond 10 years ago, you were invested during the very difficult years when the FTSE 100 share index fell for a number of years running. The last five years have been much better."
What do you do next?
Policyholders should think carefully about what kind of policy they have, what they expect of it, what other investments they have and which company they are invested in. While some insurers hold out the prospect of further disappointing returns, other companies with strong funds which have still to announce payouts may have better news. The crucial advice is to take stock of your position and take action.
If you have a good spread of alternative investments, continuing to hold with-profits may make sense. Others may wish to switch elsewhere. But if you decide to surrender don't forget early redemption penalties. Norwich Union has dropped its penalty known as Market Value Adjuster (MVA), but says if shares continue to helter-skelter it may have to be reintroduced. Similarly, Standard has trimmed the number of MVAs it was imposing, but this will be a fluctuating position.
Mortgage endowments
There is not much good news on this front, and anyone relying on an endowment to settle their home loan should either make additional savings or consider switching to a repayment mortgage. This year NU's endowments typically reached their target and even paid a little extra on top, yet only 45% of Standard Life's did so. However, it is worth remembering that endowments maturing today were sold in 1983, long before low-cost endowments had ever been thought of and certainly before their heyday in the late 1980s and early 1990s. Virtually all contracts sold at that stage will fall short of their promise. Borrowers must make alternative arrangements. - Source: news.scotsman.com

Pru policyholders lose with-profits cash

Sun, 3 Feb 2008 00:00:00 +0000

Time is running out for John Hurdle. He is one of 4.5m Prudential policyholders who have been hoping for a with-profits windfall in the near future. But the odds are that he will be disappointed. His two policies are due to mature this year, but because of the way the Pru has structured its proposed payouts and because of delays, John is likely to lose his right to any money.
An estimated 250,000 policyholders have already lost windfalls in this way - and a further 4,000 are losing out with every week that passes.
Last March, the Pru announced plans to carve up the colossal £8.7bn in its with-profits funds surplus in a process known as a 'reattribution' - where the business 'pays' policyholders for waiving their rights to the money. The process would result in payouts - hundreds of pounds for most, but thousands for some - to millions of pension, bond and endowment customers.
But there is a catch. With the Pru's proposed distribution, policyholders will get windfalls only if their plan was in force when the deal was first outlined on March 14 last year and - crucially - whenever the distribution eventually happens. Since last March the Pru appears to have done little about the issue and has said even less. The company will not provide numbers, but an estimated 250,000 Pru policies have matured since then - dashing those savers' chances of sharing in the cash.
John, 65, a design engineer from Leicestershire, has been a with-profits saver at the Pru since the Sixties. It now seems unlikely that any distribution will happen before the second of his two plans matures in December. That will mean no windfall. 'Having been made aware of the possible payout and having contributed to the fund for so long, I don't like to feel that I am missing out due to my policy maturing,' he says. 'It's just bad luck in timing.' The Financial Services Authority appears to be doing little to push on the process either, though it is taking a keen interest in any deal. The Pru's nominated policyholder advocate, City lawyer Peter Bloxham, whose job is to represent policyholders' interests in any distribution of the money, had hoped to have conducted roadshows with policyholders across the country by last Christmas. But astonishingly he has still not been formally appointed by Pru's board. Bloxham acknowledges that the longer the process takes, the more people will become ineligible. 'It is something I am acutely aware of and am discussing with the company,' he says. 'It's not just about reattribution - this is more generally about treating customers fairly.' - Source: Mail On Sunday

Standard Life increases bonuses

Tue, 29 Jan 2008 00:00:00 +0000

There was good news for more of Standard Life's mortgage endowment customers today - at least 45% of the 63,000 whose policies mature this year will not face a shortfall. While this leaves 55% whose maturing endowments will not pay off the home loans on which they are secured, today's figures represent a big improvement on last year. At that time more than 80% of maturing mortgage endowment policies fell short of their target. The former mutual insurer said its success rate could be higher than 45% because current projections do not take account of top-up payments under its 'mortgage endowment promise'. Customers with plans approaching maturity will be told in their next statement if they are eligible for such a top-up. Standard Life has announced that the 2008 bonuses on its conventional with-profits life and pension policies will be unchanged from last year.It said the maturity value today of a 25-year mortgage endowment taken out by a man aged 29 and saving £50 a month is £37,763 compared with £36,950 on a similar policy that matured a year ago.
However, the improved payout did not reach as far as pension policies. A 20-year, £200-a-month pension policy maturing now will produce a pension pot of £92,735 for a man of 65, compared with £92,820 a year ago. Since last July, the company has been using some of the money in its inherited estate - known as orphan assets - to enhance eligible with-profits payouts. Eligible plans are those that began investing, at least partly, in with-profits before demutualisation on 10 July 2006 and have remained in with-profits since then. The payments range from just £43 on a 10-year savings endowment to £473 on a 20-year pension plan.
Jim Black, Standard Life's actuarial director, said 2007 had been difficult for financial markets, particularly as the global credit crisis began to take hold. 'In spite of this volatile background, payout values for all types of with-profits plans have increased over the last year,' he said.
Good news: But only for some'This demonstrates the benefits of being invested in with-profits which, through the smoothing of investment returns, can help to shield customers from the worst impact of short-term market upheaval. 'With-profits customers are also benefiting from continued distributions from the inherited estate . . . Consequently, all types of with-profits plans have benefited from positive returns during 2007. For example, maturing endowment plans achieved an average investment return of 10% over the past year.'

The company says its has removed exit penalties, known as unit price adjustments, for more of its 2m with-profits cutomers who move their money, but the change applies only to those who move on or after their orginally selected retirement date.

Good news for Abbey investors?

Tue, 22 Jan 2008 00:00:00 +0000

Resolution is going to pay 3.6bn for the privilege of collecting and investing their premiums, along with the chance to sell more policies in the coming years. Around 2.7m current policies with a collective value of 24bn are being taken over by Resolution. Among them are policies that have been sold in the names of Scottish Provident and Scottish Mutual, which the Abbey took over in 2001 and 2002. Resolution says the much enlarged company is “committed to treating its customers fairly and will continue to take the positive steps that Resolution has been taking to improve the provision of information to its policyholders.”
Tom McPhail of stockbrokers Hargreaves Lansdown says this is not an idle promise. He has been impressed with Resolution’s attitude to transparency and disclosure since it took over the life insurance fund of the Royal & Sun Alliance group in 2004. “They’ve gone out of their way to automobile finance insurance on asset mix and bonus rates,” he said. “I’ve been impressed with the handling of the R&SA so this should be quite good news.”
Who are they?
If anyone with an Abbey policy has not yet heard of Resolution, that is probably because it is a very new company. It was set up in 2004 to buy the closed life funds of other insurance companies and make a profit while gradually running them down as policies matured.
Many insurers have found the investment business rather difficult in the last few years. They were caught out by the huge stock market slump at the start of this decade, and more onerous regulatory and investment requirements. They have also seen new business dry up, mainly thanks to the widespread avoidance of endowment mortgage policies in the wake of the mis-selling of this particular type of investment.
One wag has dubbed Resolution the Womble of the insurance industry, going around buying up other people’s rubbish. But by managing the money with the advantage of economies of scale, Resolution hopes to prosper. So far it is solvent, makes a profit and conforms to all the regulatory requirements of the Financial Services Authority. As the FSA pointed out to consumers when Resolution took over the R&SA funds, the change should make no difference to the outcome of individual policies, nor should it affect pension pay-outs.
Investment returns
Thanks to taking over or merging with other companies, such as the Britannic group last year, Resolution has become very big and will soon have seven million customers and 63bn in assets to manage. Now, with the Abbey deal, it will also sell new polices, either through the Abbey branches or through independent financial advisers. In time, it is possible that investment returns may improve for Abbey policy holders. Currently the Abbey funds have only 38% of their money in shares, with the rest invested in bonds or held in cash. That is a rather cautious portfolio by finance insurance standards. Given the difficult recent history of the UK insurance industry, that would come as a relief to many alternative capital finance insurance integrated management market reinsurance risk risk series through transfer wiley.

Friends Provident fined £675,000

Sun, 20 Jan 2008 00:00:00 +0000

Friends Provident has been fined 675,000 for business finance insurance mortgage endowment complaints.
The Financial Services Authority said the company’s treatment of complaints had, in the past, been “biased” against customers. The insurer is now reviewing all complaints it rejected between January 2000 and 10 February 2003. Millions of people in the 1980s took out endowments - a type of insurance policy - to finance their mortgages.The fine is the first to be levied by the FSA for mis-handling complaints about endowment mortgages.
Second chance
The FSA said up to 5,500 people whose complaints were rejected, in fact, may have been genuine and “deserving redress”. We will not tolerate poor systems which expose consumers to the risk that genuine complaints…are rejected unfairly
Andrew Procter, FSA
But their complaints were rejected because the procedures were “inherently not fair and biased against customers.”
Friends Provident said in a statement that it “regrets what has happened”. “Once the issue was auto company finance insurance premium united, Friends Provident redesigned its processes for dealing with mortgage endowment complaints, with full implementation taking place in February 2003,” it added.
Independent accountants have now been appointed to oversee this review of the complaints which were rejected between January 2000 and 10 February 2003.
Andrew Procter, director of enforcement at the FSA, said: “We will not tolerate poor systems which expose consumers to the risk that genuine complaints, which may deserve compensation, are rejected unfairly.
“Friends Provident and its senior edition finance hill insurance international management mcgraw risk series failed to respond in an effective and timely manner to FSA guidance and to correct problems found in its systems when it had reasonable opportunity to do so,” he added.

Endowments payouts take another fall

Wed, 16 Jan 2008 00:00:00 +0000

The misery continues for homebuyers using endowment mortgages to repay their loans, with massive year-on-year falls in pay-outs.
Norwich Union, which also runs the old Commercial Union and General Accident policies, says nine out of ten of its mortgage endowments will not cover the loan when they mature. This year 69,000 policies will mature, and it expects half to show a shortfall. Last year the average shortfall was £1,470, but this was halved thanks to its mortgage 'promise', introduced in 2000. Under the scheme, Norwich Union helps reduce the shortfall to some policyholders. Savers with a Commercial Union policy who put in £50 a month for 25 years from January 1, 1983, (from age 29) will receive just £39,321. This is a huge 10% down on the £43,697 paid out on a 25-year plan taken out in January 1,1982. The fall is partly due to the company making its policies more expensive for new savers in 1982. Worse, it is 19.6% down on the £48,889 paid out just two years ago. The fall comes even though the £16 billion fund in which these policies are invested grew by 5.4% last year and 11.7% the year before.
Those with plans with Norwich Union and General Accident will also see lower payouts. Norwich Union will pay £39,357, 6.6% down on the previous year, while at General Accident it's £45,911, down 2%. Pension payouts are also down. A saving of £200 a month over 20 years to age 65 will give £114,704 on a Commercial Union policy, down 4.5% on last year's £120,141.
With a Norwich Union plan the sum drops to £104,976 from £107,366, down 2.2%. For those with a General Accident policy the payout is £110,818, virtually unchanged on 2007's £110,888. The figures from Norwich Union spell bad news for with-profit policyholders with other companies who are yet to announce their investment results for last year. Norwich Union is a strong with-profits office, with most of the money in the fund invested in shares and property.
Shares and property typically give better returns than bonds over the long term. The Norwich Union fund has 18% invested in property and 53% in shares. And unlike other life insurance companies, it has earmarked £21m to reduce shortfalls on mortgage endowments maturing this year. Friends Provident payouts also fell again this year. Its with-profits fund made a 5% return last year. A 25-year savings endowment policy at £50 a month maturing this year at £36,425 is 3% down on a similar policy last year.

Britons face the sobering reality of post Christmas debt!

Thu, 10 Jan 2008 00:00:00 +0000

The UK’s largest endowment policy market maker (aap), is predicting that spiralling debt, fuelled by a rise in credit card spending over Christmas, coupled with increasing mortgage rates will see many more concerned endowment policyholders attempting to sell their policies. It is likely that in order to achieve a higher price for an endowment policy, more people will be using the secondary market as opposed to cashing their plan in through the Life Company.
Dan Farrow, CEO of aap’s parent, the TIS Group, comments:
“With the average Briton now £33,000(1) in debt combined with over-indulgent spending over Christmas, a very sobering reality will begin to dawn on consumers as the first credit card statements start to arrive. In addition, for many Britons on historically cheap fixed rate mortgages that are approaching the end of their terms, the financial situation is only likely to get worse as those re-mortgaging face doing so at much higher rates.
“Endowment policyholders who find themselves struggling to pay off Christmas and New Year debts on top of meeting their mortgage repayment costs and who are now considering surrendering their policy, should remember that there is an attractive alternative to surrendering a policy to the Life Company in the form of a market maker such as aap.”

Norwich Union plans windfall cash grab

Mon, 7 Jan 2008 00:00:00 +0000

A row has erupted as Norwich Union continues to negotiate over the proposed carve-up of £5bn spare assets - known as the inherited estate - locked inside its with-profits funds. Norwich Union, part of Aviva, wants to free the cash in a one-off deal. Shareholders would benefit because they would secure some of the money to finance business expansion. In theory, policyholders would gain too because they would receive windfalls in exchange for waiving their rights to the money. Almost £150m could be wiped off windfalls paid to Norwich Union with-profits policyholders if the proposed distribution of the fund goes ahead.
But negotiating who should get what is hugely complex and threatens to grow ugly. Norwich Union's board is acting in the shareholders' interests, while the insurer's 1.1m with-profits policyholders are represented by Policyholder Advocate Clare Spottiswoode.
Which?'s financial policy adviser Dominic Lindley claimed the FSA was 'completely failing consumers'. He reckons that billions of pounds of with-profits money has been spent paying for the mis-selling of endowments and pensions and that the FSA has done little or nothing to stop it - 'At the beginning of 2007, the amount of money reserved in the Norwich Union with-profits funds to pay for mis-selling was £182m. By the time the FSA gets round to tackling this issue, it will have been spent.'
Norwich Union director Stephen Mann says: 'Whether or not it is fair to apply the costs of mis-selling to the inherited estate is a profound question. The funds have benefited from sales in the past, and it could be argued that they should carry some of the risk of those sales going wrong, too.', The negotiations continue, with Norwich Union hoping to be able to present an offer to policyholders by spring.

Bonus cut on 50,000 policies

Mon, 7 Jan 2008 00:00:00 +0000

Stoke Gifford life insurance company Axa SunLife has cut bonus payments on up to 50,000 life insurance and pensions policies.
The company said the annual bonuses for with-profits policies that investors took out with the former Axa Equity & Law would be one per cent for 2004, down from two per cent the previous year. This announcement affects three per cent of Axa's with-profits policies - those taken out with Equity & Law, which Axa bought in the 1990s. The company has since been merged with Axa SunLife.
The bonus rates for the remaining 97 per cent of Axa with-profits policies, which total an estimated 1.65 million policies, will be announced in March.