The returns from 25-year with-profits endowment policies are expected to continue falling unless the...
The returns from 25-year with-profits endowment policies are expected to continue falling unless the stock market can recover strongly in the coming years.
As each year passes, another year's exposure to the strong growth run of the late 1970s-1980s is lost as it slips out of the 25-year timeframe.
For example, policies maturing at the end of 2002 missed out on the FTSE AllShare's 43.6% growth in 1977 and gained exposure to the 22.4% loss in 2002.
Between 1979 and 1986, the FTSE All-Share delivered average annualised growth of 24.32%, far above the single-digit returns many investors anticipate in the medium term.
Policies maturing at the end of 2003 will lose the 7.5% growth of the FTSE All-Share in 1978 and gain exposure to 2003 returns. While this should benefit investors as the FTSE All-Share is up 9.19% over the calendar year to 13 August, those in policies maturing over the next few years may find they are locking in more years of weak growth.
Patrick Connolly, director of Chartwell, said: 'As we go forward, one by one these years will disappear from the 25-year period. Will this level of stock market returns be repeated? If the answer is no, the 25-year with-profit returns must fall further, and in reality they will keep falling.'
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