1991: Shadows and Fog – Woody Allen
Financial Planning ought to be more like a light to guide rather than a fog to muddle, yet that is sadly the position that as an Independent Financial Adviser, I find myself having to navigate. Take one of my pet dislikes – “With-Profit Funds”. To my mind this has always been akin to wizardry with the promise of smoothing the “peaks and troughs” of the investment markets into a flat, but upward trending line. Every year a bonus is added and cannot be removed and at the end of the policy (maturity date) a final bonus or terminal bonus is added.  This has nothing to do with the bonuses that RBS or other Banks pay. This is an amount decided upon by the Insurance company concerned. What’s wrong with that? some would ask, to which my response is – it is almost impossible to ever get a real value or any sense of what the policy might actually be worth at maturity. Certainly there are annual reports and guides that might provide helpful indications about the fund, its make-up and so on, but these are also rather difficult to make sense of.
Today Standard Life has announced its bonus rates that will be applied tomorrow. The press release is, frankly rather glowing “Most plans have increased in value in the year to 1 February. Many customers are enjoying the benefit of valuable guarantees built up over the years on their with-profit plans”. However, what is unclear in the 6 page press release is that despite this statement, most bonus rates are staying the same and some of them are being cut. The numbers are also woefully small, for example a unitised with profits bond has a bonus rate of 2.50%. Guaranteed rates have been honoured, but we’re only talking about 3 or 4% at the most here. Other unitised life policies have seen rates cut from 1.25% to just 0.75%. Not exactly heart-warming. In practice, something like 750,000 policyholders will see bonus rates cut. Standard Life used to be a leading light in the With-Profits market. Their performance has been better than this, so there is a degree of prudence being shown by effectively holding back money, but one has to ask is this really any help to investors that want to plan for their future.
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