OpinionAug 3 2016

Without-profits, more like

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Recently I read a brilliant piece on with-profits by tenacious journalist Sylvia Morris. She had spent weeks digging through the regulatory reports to discover how much these investments were paying.

It made for gruesome reading. Legal & General, one of the better performers is, for example, paying £77,310 to a 65-year-old after 20-years’ worth of saving £200 a month.

This compares with the £267,291 paid in 1997 for the same level of investment. This latter figure comes from Financial Adviser’s sister publication, Money Management.

The 1997 figure is significant because these were the figures companies were happy to publish, and financial advisers bandied around at the time, as evidence of what solid investments with-profits were.

When taking out plans, investors would have been told they could expect an income of around £29,000 a year for their £200 commitment – a figure which still looks healthy today even after accounting for inflation.

In fact, based on current annuity rates, and allowing for the poorer returns, they might be able to buy around £3,774 according to Morris’s report in the Daily Mail.

Twenty years ago with-profits was the investment nearly every adviser wanted to sell.

Twenty years ago with profits was the investment nearly every adviser wanted to sell

Today it is the investment no one wants to talk about. The Association of British Insurers no longer collects figures on the numbers from with-profits bonds.

Most insurers will not say what annuity rates they offer to existing customers.

Merely mentioning with-profits can lead to accusations that you are dragging up the past.

But the problem is that for millions of investors, with-profits is still the present. And it will continue to be their present and future for many years to come.

Whether it is through a mortgage endowment, a pension policy or a bond, people are still forcibly committed to with-profits.

So I am afraid that those of us old enough to remember the frenzied way they were sold, the commission that was pocketed, the warnings that were ignored and the smirking regulators who joked about their failures, will continue to harp on about them.

The Financial Conduct Authority could still do more work to ensure the charges on some of these products are cut to minimum levels and investment management is improved.