Few days go by without a reminder in the national press that this country is in a pensions crisis. One moment it is the news of Shell closing its final salary scheme, it being the final FTSE 100 company to do so, the next moment it is the news that people are saving too little into their pension and making poor investment choices to boot.
Fact of the matter is, all of the bad news does little to encourage the average person to invest. Add to that all of the redundancies taken place, frozen wages and high inflation, and you have a country full of people who would rather spend the money that they have on the necessities of life, and perhaps a few luxuries, rather than pile it into a pension plan where it will be locked up until they reach retirement age.
No matter that now might be a buying opportunity because some investments are cheap and the prospect of long term growth looks promising. People want jam to day, not tomorrow.
But for those who do want to put money away for the future and take advantage of the tax breaks that a pension plan provides, where should they invest?
With profits results
With profits pensions have a long history but their prevalence in the market is dwindling as policies mature and the world turns to unit linked pensions. Once the cornerstone of the industry with the addition of guaranteed annuity rates, the number of providers still offering with profits pensions, these days the unitised variant, is very few.
Nevertheless, because there are still billions of pounds invested in with profits funds through endowments and pensions, this market still has a lot of importance.
A year ago, we tried to find out just how many with profits pensions were still in force but came up against a lot of resistance to our efforts. However, the little information that we were able to collect showed that there are more than 1m policies in force across seven providers: Alba Life, Britannic, Guardian/Scottish Equitable, Pearl Assurance, Scottish Life, Scottish Widows and Standard Life. Given that this was only a handful providers, the number of actual policies in force is surely much larger.
Table 1 shows actual results for with profits personal pensions, after all charges, over 5, 10, 15 and 20 years for regular contributions of £200 pm gross for policies maturing on 1 January 2012. Performance data for firms that declined to complete our survey are as at 1 March 2011, having come from the latest Forms 59A and 59B of their FSA returns.
The results shown in the Table use the commission levels and charges that applied to the bulk of the companies’ business at the time that the policies were taken out.
While everyone thinks that the with profits sector as a whole delivers bad news on the doorstep year after year with respect to payouts, the reality is that there is a fairly even split between those policies that are better than last year and those that are worse.
This survey marks a change in the list of companies that it covers because Friends Life, the new parent company of Friends Provident, acquired the closed life business of Axa and consolidated its business into its own. Because the with profits funds have been merged, they are now listed as Friends Life Company and Friends Life Limited, rather than Friends Provident, Axa Equity & Law and Axa Sun Life.