Standard Life freezes with-profits bonuses - Jan 2010

Despite stock markets soaring globally over the past year Standard Life has frozen bonus rates for more than 1m with-profits policyholders.

The news follows Aviva's announcement earlier this month that it was holding, and for some policies even reducing, regular bonus rates for its savers. In its annual with-profits announcement, Margaret Flaherty, at Standard Life, said: 'While returns from equity markets have improved they are still some way off recovering from the preceding downturn. 'Other classes of investment such as fixed interest and property delivered lower returns in 2009 than equities.'

The news will come as a blow to mortgage endowment holders hoping that the stock market boost would help more policies hit their target. Many policyholders are seeing a huge variation on the success of their respective plans across Standard Life's suite of seven with-profits plans. While the UK's FTSE 100 rose by more than 22% in last year, many of Standard Life's with-profits funds, due to a low exposure to shares, missed out on the growth.

For example, pension annuities, with 39% invested in equities achieved an estimated gross return of just 7.3% while some plans, including mortgage endowments and non-unitised pensions delivered merely a 6.2% return, with an equity exposure of 32.5%. Flaherty adds, that despite this situation 'many with-profits investments have outperformed regular savings in a building society', where a £50-a-month, 25-year-savings endowment providing a return of £28,139 compared with £20,799.

In addition, a £200-a-month, 20-year individual pension plan taken out on 1 February 1990 by a man retiring at age 65, has a retirement value today of £82,301. A with-profits bond investment of £10,000 on 1 February 2005 has a paltry cash-in value today of £11,795. Once area of respite for policyholders is that there are now fewer policies now have exit penalties, known as market value reductions (MVRs), and, where MVRs remain, they are generally smaller than before. MVRs on with profits bonds taken out between September 2001 and November 2005 have now been removed.

Laith Khalaf of adviser Hargreaves Lansdown said: 'We have a pretty dim view of with-profits, and unsurprisingly this bonus announcement hasn't changed that. Every year payouts seem to fall further, even though 2009 was a pretty good year by any anyone's standards. Investors who are close to retirement or maturity should probably stay put. But those with more time until they draw on their fund should consider alternative investments with better long term prospects and a more transparent structure.'

Patrick Connolly of AWD Chase de Vere, another adviser, said: 'We do not actively recommend with-profits investments to our clients, as there are more flexible and transparent options available. However, this does not mean all investors should sell out, as there are perfectly good reasons why existing with-profits investments should be kept. These include retaining valuable guarantees, high encashment penalties and tax reasons. 'Standard Life has been one of the more consistent with-profits providers over the years and while their investors will not be exactly jumping for joy, they may at least be pleased to see bonus rates maintained and exit penalties reducing.'

*Source: thisismoney - 26th January 2010

« Return to full news listings