With-profits endowments are going nowhere fast. The problem is twofold: while on the one hand there is billions of pounds worth of client money still sitting in them, their popularity has been waning for many years, meaning providers have little motivation to focus any attention on the product. Even though they are no longer a popular option, there are millions still in operation – 2m matured in 2013 alone. But performances vary wildly from provider to provider, gone are the days when they were the ‘guaranteed’ way to pay off a mortgage, and increasingly more providers are closing their books to new business.
There was a time, though, when investors stood to benefit enormously from these policies. In 2000 the average payout on a 25-year policy was £98,370 which worked out to a remarkable annual growth of 13 per cent every year.
How they compare
Table 1 shows how with-profits endowments compare to popular mainstream investments. Whether or not there is a slight overall improvement across longer term endowments, the fact remains that they match up poorly to many other investment types. On average, a with-profits endowment universally gives better returns than leaving the same amount in cash, but performance is far stronger in the IMA Mixed Investment 40-85 per cent Shares or UK All Companies sectors, or even a UK equity tracker fund. Regardless of past performance, these figures show that, at the present time, with-profits funds are not giving the sort of results investors could achieve elsewhere.
One of the main reasons endowments appear to outperform the averages of other investment types across 25-year policies is that providers who are winding down their with-profits business give large bonuses and enormously skew the best and average figures. Even with that in mind, the average UK All Companies fund outperformed the average with-profits endowment by more than £3,000 over the same period. A look at the shorter-term figures shows with-profits endowments offer growth of just 2.8 per cent on average over 10 years, which compares feebly to 8.6 per cent in a UK All Companies fund or 7.3 per cent in a UK equity tracker.
This year’s figures
Table 2 shows the actual maturity values at 1 February 2014 for a male aged 30 at next birthday based on a policy with a £50 monthly premium. We show the results for 10, 15, 20 and 25-year endowment policies, the sum assured, any bonuses that have been applied, as well as the annual growth rate that the maturity value represents. Where that data is available, it also lists the maturity value from last year’s survey to show changes over the past year.
