Phoenix Life announced that low interest rates have dragged down the level of annual bonuses paid on some of its with-profits funds.
Conventional life policies and pension policies in the Phoenix With-Profits funds will both pay an annual bonus of 2.5 per cent. This is compared to 2.5 per cent and 3 per cent, respectively, paid the previous year.
Conventional UK life policies in the SPI With-Profits fund will remain flat at 3 per cent, while unitised with-profits pensions in the Britannic With-Profits fund will include a bonus of 2.5 per cent, down from 3.5 per cent in 2016.
Phoenix Life chief executive Andy Moss said that despite very low market rates of interest, and often uncertain market conditions, the company has managed to continue paying annual bonuses from the majority of its funds.
“We are pleased to be able to maintain annual bonuses on many of our policies this year, despite the very low market rates of interest. We also continue to apply estate distribution to final pay-outs, a key differentiator between open and closed funds,” Mr Moss said.
The funds in question have now closed to new investment, meaning that many of the with-profits funds have excess assets, referred to as the estate, in addition to those needed to pay benefits to policyholders.
A final bonus is normally added if the underlying value of the investments is greater than the benefits already guaranteed.
Most of Phoenix’s funds will not levy market value reductions (MVRs), which work to ensure that all policyholders receive a fair share of the fund and that those who stay in the fund are not disadvantaged.
Investors in those funds that do include a MVR will be notified of MVR-free guarantee dates in their annual statements.
Scott Gallacher, chartered financial planner at Rowley Turton Private Wealth Management, said that the fact that Phoenix Life can still pay a bonus is positive, the projected returns are likely less than many had anticipated.
“Whilst With-Profits policies are much maligned, it’s somewhat reassuring to see that the likes of Phoenix are still applying reasonable annual bonus rates for today’s investment world.
“Overall the projected returns on their endowments look respectable albeit they are probably less than was originally projected; consequently this is likely to be of little comfort to many original endowment mortgage holders.”
