With-profits investors may now have to consider whether they are better off getting out while they can and moving their investments elsewhere, suggests Chartwell, following bonus announcements today from Abbey, Axa and Royal London.
Ben Willis, business development manager at Chartwell Investment Management suggest financial intermediaries are now at a crossroads concerning certain with-profits investments, as few IFAs at the firm can now see the likes of Abbey’s closed with-profits funds from falling any further in value.
Abbey started the 'with-profits' ball rolling this morning by revealing it would not be offering any annual bonuses this year to Abbey National Life, Scottish Mutual and Scottish Provident policyholders of with-profits investments, except where guarantees are held.
This is the second year in a row the banking group has withheld any bonus payouts, following closure of the funds in 2002 and 2003, as the firm argues the fund still has a shortfall to make up from the previous three years.
That said, the group is planning to offer Scottish Mutual customers a free switch into either the Smoothed Investment fund or its multi-manager funds from June 2004.
Axa also announced it would cut its bonus rates by a fraction, lowering the unitised regular bonus rate on Axa Sun Life bonds from 2.5% to 2%, on personal pensions from 3% to 2.25% while mortgage endowments will still receive 3%.
Unitised regular bonus rate members of the Sun Life Assurance Society will all see their bonuses cut 0.75 percentage points to 2.25% for bonds, 3% on personal pensions, and 2.25% on mortgage endowments.
However, Royal London and Scottish Life’s with-profits funds also look relatively sparse of growth potential, as the mutual insurer also argues bonuses need to be lower to bring policy values into line with assets.
Scottish Life’s closed book with-profits fund returned a total of 3.6% in 2003 - partly as a result of the low 18% equities to December 31st 2003 - reflecting the 0.25% basic bonus and 0.25% additional bonus offered on its conventional with-profits endowments and individual pension products.
The Royal London fund which gained 7.7% growth in 2003 now has a 40% equity holding and offers annual bonuses of 2% on unitised with-profits Isas, 1.75% on unitised with-profits savings and 2.5% on unitised with-profits bonds.IFAonline
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