Personal pensions: latest results

Finding anything to write about that is not all bad news has proved difficult for this survey of personal pension results. A year ago we were lamenting the fact that the FTSE 100 was back to where it was 10 years previously. In retrospect, that seems like almost good news, because only six months later parity seems positively benign compared with what we have now.

Most stock markets around the world are in a state of constant turmoil, and with many of the developed nations in recession and talk of depression just around the corner, the value of savings has plunged. But, despite all the doomsayers, with profits pension plans have held up well, with past results comparing favourably with other investments.

Most of the national press seems determined to pillory with profits, and it is true that their opaque nature causes suspicion. Recently the press has been full of stories about cuts to bonus rates that are in excess of stock market falls, but that is only half the story. There is no doubt that bonuses have been cut, and reversionary bonuses are virtually unheard of at present, but despite the stock market falls, most life offices are still allocating bonuses.

Norwich Union, for example, paid out £1.7bn in bonus additions over the past year. Despite this, its results are still poor compared with those of other major providers, more of which later. It has also recently announced that the planned distribution of surplus, which could have added to the return on some pension policies within the group, has been shelved.

Putting with profits results in context to compare them with similar investments makes for some interesting reading.

Results in context

In order to put with profits results into perspective, shows the average with profits personal pension payout since 1999 when Labour came to power, for both regular and single contributions over 5-20 years.

For this survey we have added further data for comparison purposes. It is these additional data that make the most interesting reading. For the 2009 survey results, we have shown the best, average and worst with profits payouts from the survey, and added comparison figures for similar investments.

Just looking over the past five years, it can be seen that, for regular contributions, the average with profits regular contribution policy produced an annual growth rate (AGR) of 5.1%. This compares extremely well with all the other alternatives. In fact, even the worst with profits policy over five years produced a better result than all the other average investment results, apart from cash.

Over 10 years the average with profits policy has easily beaten all the others. The worst with profits plan, from Britannia Life, is showing a negative return, but this is the only 10 year regular contribution plan to be showing a negative return - all the others are positive. Another point that should be borne in mind is that the returns for the pension plans are based on the gross outlay. All these contributions will have had the benefit of tax relief throughout, at least at the basic rate, and at the higher rate for those liable, so that single, negative, return would be positive after tax relief and would easily beat all the other alternatives shown.