With-profit bond investors are unclear about how much they will lose because of the varying market v...
With-profit bond investors are unclear about how much they will lose because of the varying market value adjusters (MVA) being applied, according to Patrick Connolly, associate director at Chartwell.
Providers across the board have introduced MVAs on their with-profits bonds due to the downturn in the equity markets. Scottish Mutual, Norwich Union, Friends Provident, Legal & General have all reported a common MVA while Royal & Sun Alliance (R&SA), Scottish Equitable and Prudential have MVAs that vary on a case by case basis depending on when the policy was bought and how much money is in it. R&SA's final bonus varies from paying 11% if the policy has been held since 1996 to having a 12% MVA if it was bought after September 2000, according to the group's chief actuary Mike Kipling.
Details drawn up by Connolly show that most people looking to cash in their bonds early will be hit with a reduction in the value of their bond of around 5% to 10%. Connolly said that getting this information from the life companies was difficult and argued that the divergence in the way that the providers issued documentation made it difficult to make meaningful comparisons.
Scottish Mutual's with-profits bond has had a MVA of between 5% and 10% imposed on it; Norwich Union's has been set at 5% when taking out more than £50,000; Friends Provident imposed an MVA of 5% just before its demutualisation.
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