Friends Provident shows up market rivals
Nina Montagu-Smith
Friends Provident’s 1.1m policyholders have received the good news that endowment maturity values have risen since last year. Despite being closed to new business, its with-profits fund returned 9.3% last year.
Its 25-year endowments costing £50 a month are now maturing at £29,966 compared with £25,526 a year ago. This comes in sharp contrast to dismal results from Aviva and Standard Life, which are generally considered to be better placed for investment growth as they are open funds.
Standard Life said last week it made a return of only 7.9% on its flagship Homeplan fund, which backs most of its mortgage endowments, against an average return of 14% for with-profits. Some older-style endowments are in a separate fund that returned only 6.2% last year.
The announcement came two weeks after Aviva dropped its own bombshell on investors, saying its fund returned only 6% in 2009.
Standard Life, which has 1.6m with-profits policyholders, blamed poor performance from overseas equities, which it said formed the bulk of its equity investments. Aviva blamed the fact that only 39% of its fund was in equities last month, with a further 18% in property and the rest in bonds and cash. Its property investments made a loss, cancelling out gains on corporate bonds.
Many with-profits providers also blame regulations that force them to hold large amounts of fixed-interest assets to back up guarantees their policies are often required to meet.
A £50-a-month, 25-year endowment maturing this week is worth £28,139, Standard Life said, compared with £32,534 a year ago.
Laith Khalaf at Hargreaves Lansdown, the adviser, said that while a 20-year pension, with a £200 monthly contribution, is maturing at £82,301 from Standard Life (against £87,095 a year ago), the average balanced managed fund produced £90,405.
However, Standard Life is relaxing penalties known as market value reductions (MVRs) for cashing in policies early. Meanwhile, it may still be worth selling rather than surrendering your endowment — though the returns are much lower than they once were.
These are the options:
ENDOWMENTS
One way to avoid an MVR is to sell your endowment. Though the premium investors can get from the traded endowment market has fallen in recent years, it is still possible to get up to 6.5% more. Buyers see them as attractive because they have not had to pay in all the premiums over the preceding years.
Bill Malkin, from the TEP Exchange, which provides access to a number of traded endowment brokers, said a Friends Provident 25-year endowment taken out in 1991, with a quoted surrender value of £24,720, recently sold on the second-hand market for £26,214 — an improvement of more than 6%.
BONDS
With-profits bonds do not have maturity dates but many let you exit on predetermined anniversaries without an MVR — typically the 10th anniversary.
Skandia research has found that UK savers will withdraw £8 billion in the next three years, taking advantage of 10-year penalty-free withdrawals on bonds.
However, Andrew Barker at Skipton Financial Services said there may be reasons to stay in. “Some funds have valuable guarantees attached, or guaranteed minimum returns. But if you do not, our advice is to get out.”
PENSIONS
This is where you are most likely to find there are valuable guarantees or minimum guaranteed returns attached to your policy, so exercise care before you cash in. Again, if you cash in your policy before its maturity date (most likely your normal retirement age), you will probably suffer an MVR.
From the Sunday Times
Published January 31 2010
