Slash and Burn Policy
Aviva (nee Norwich Union) has slashed the payouts on its with-profits (an ironic term, given how useless these products are) endowments and pensions.
Aviva runs several with-profits funds including those sold by; General Accident, Commercial Union, Norwich Union and Provident Mutual.
- A 25 year General Accident mortgage endowment is now down 8.4%
- Aviva Life is now down 12%
- Commercial Union down 7.7%.
Precisely why does the FSA allow life assurance companies to use the phrase "with profits", when it is very clear that they do not do that?
Read more: http://www.dailymail.co.uk/money/article-1201432/Aviva-slashes-payouts-profits-endowments-pensions.html#ixzz0MSDHkBV4
Showing posts with label returns. Show all posts
Showing posts with label returns. Show all posts
Monday, July 27, 2009
Monday, October 27, 2008
What Happened To Smoothing?
What Happened To Smoothing?
The Times reports that:
"Legal & General has become the latest insurer to cut terminal bonus rates on with profits funds. The FTSE 100 company is cutting rates by between 5 and 9 per cent in the wake of falling and turbulent stock markets.
The move means that a 25-year £50 a month mortgage endowment maturing will pay £38,565 compared to £41,293 before the reduction. A 20-year £200 a month pension maturing after this change will pay £90,999 compared to £98,511 before the change.
Mark Gregory, managing director of with profits at L&G, said the decision would affect 10,000 of the company's 800,000 policyholders. He added: “We have made the decision to reduce final bonus rates to take account of some of the negative movements in the investment markets.
'In making these changes, we are ensuring fairness between all of our customers, whether they are leaving or remaining in our with profits fund.'"
Am I alone in believing that the concept of a "with profits" (a somewhat ironic name under the circumstances) fund is that the "profits/losses" are smoothed over the period of the policy in order to minimise wild fluctuations in returns?
Surely, if these policies had been well managed by L&G, such a large reduction in one year would be unnecessary?
The Times reports that:
"Legal & General has become the latest insurer to cut terminal bonus rates on with profits funds. The FTSE 100 company is cutting rates by between 5 and 9 per cent in the wake of falling and turbulent stock markets.
The move means that a 25-year £50 a month mortgage endowment maturing will pay £38,565 compared to £41,293 before the reduction. A 20-year £200 a month pension maturing after this change will pay £90,999 compared to £98,511 before the change.
Mark Gregory, managing director of with profits at L&G, said the decision would affect 10,000 of the company's 800,000 policyholders. He added: “We have made the decision to reduce final bonus rates to take account of some of the negative movements in the investment markets.
'In making these changes, we are ensuring fairness between all of our customers, whether they are leaving or remaining in our with profits fund.'"
Am I alone in believing that the concept of a "with profits" (a somewhat ironic name under the circumstances) fund is that the "profits/losses" are smoothed over the period of the policy in order to minimise wild fluctuations in returns?
Surely, if these policies had been well managed by L&G, such a large reduction in one year would be unnecessary?
Thursday, October 16, 2008
Market Falls
Market Falls
It should come as no surprise to anyone with an endowment policy that the ongoing falls in the stock market will negatively impact the returns on the already poorly performing endowment policies.
However, another issue that may also affect returns is the level of involvement by the life assurance companies in complex financial instruments (eg credit default swaps).
Exactly how exposed are the life assurance companies to these instruments, and what effect will that exposure have on the stability of the endowment policies managed by these companies?
It should come as no surprise to anyone with an endowment policy that the ongoing falls in the stock market will negatively impact the returns on the already poorly performing endowment policies.
However, another issue that may also affect returns is the level of involvement by the life assurance companies in complex financial instruments (eg credit default swaps).
Exactly how exposed are the life assurance companies to these instruments, and what effect will that exposure have on the stability of the endowment policies managed by these companies?
Monday, July 21, 2008
Friends Provident Cuts Bonuses
Friends Provident Cuts Bonuses
Those long suffering endowment policy holders who have polices managed by Friends Provident will have been disappointed to learn that it will be slashing the final bonuses it pays to long-term savers.
Friends Provident state that the value of its with-profits fund fell by more than 7% during the first half of the year.
Whilst annual bonuses are being maintained, the final bonuses are being cut. Those in the main with-profits fund are being more than halved.
A policyholder with a 15 year unitised pension plan in the main fund will receive a regular bonus of 4%, but their final bonus will be cut from 18.7% if the policy had matured in January to just 2.1% now.
Those with a 25 year policy will be paid a final bonus of 17.5%, a massive reduction from the original 40% in January.
The ongoing credit crisis and recent falls in the stock market are being blamed. All very well, but what about the previous years when the stock market was booming?
A lousy result for those who have spent years investing in these policies.
Those long suffering endowment policy holders who have polices managed by Friends Provident will have been disappointed to learn that it will be slashing the final bonuses it pays to long-term savers.
Friends Provident state that the value of its with-profits fund fell by more than 7% during the first half of the year.
Whilst annual bonuses are being maintained, the final bonuses are being cut. Those in the main with-profits fund are being more than halved.
A policyholder with a 15 year unitised pension plan in the main fund will receive a regular bonus of 4%, but their final bonus will be cut from 18.7% if the policy had matured in January to just 2.1% now.
Those with a 25 year policy will be paid a final bonus of 17.5%, a massive reduction from the original 40% in January.
The ongoing credit crisis and recent falls in the stock market are being blamed. All very well, but what about the previous years when the stock market was booming?
A lousy result for those who have spent years investing in these policies.
Thursday, June 05, 2008
Reattribution Change
Reattribution Change
The Financial Services Authority (FSA) has proposed that insurance companies should no longer be able to use surpluses from their with-profits funds to compensate customers who have been mis-sold endowment policies.
Many of the claims for mis-selling of endowment policies have been settled using with-profit surpluses and returns on the retained funds.
Under existing FSA regulations, compensation and other business costs can be met from orphan funds, which are eventually reattributed to policyholders and shareholders, normally at a ratio of 90-10 (policyholders to shareholders).
However, the proposals for the reattribution of Norwich Union's £2.6BN has brought down a deluge of criticism on the heads of the FSA and life assurance companies for the use of retained funds in this way.
Clare Spottiswoode, the policyholder advocate in this case, has described Aviva's (owners of Norwich) proposals and the FSA regulations as unfair to policyholders.
The proposal by the FSA may be a step in the right direction, if it is implemented.
The Financial Services Authority (FSA) has proposed that insurance companies should no longer be able to use surpluses from their with-profits funds to compensate customers who have been mis-sold endowment policies.
Many of the claims for mis-selling of endowment policies have been settled using with-profit surpluses and returns on the retained funds.
Under existing FSA regulations, compensation and other business costs can be met from orphan funds, which are eventually reattributed to policyholders and shareholders, normally at a ratio of 90-10 (policyholders to shareholders).
However, the proposals for the reattribution of Norwich Union's £2.6BN has brought down a deluge of criticism on the heads of the FSA and life assurance companies for the use of retained funds in this way.
Clare Spottiswoode, the policyholder advocate in this case, has described Aviva's (owners of Norwich) proposals and the FSA regulations as unfair to policyholders.
The proposal by the FSA may be a step in the right direction, if it is implemented.
Wednesday, May 07, 2008
Worse Than Worthless
Worse Than Worthless
According to a recent survey by Investment, Life & Pensions Moneyfacts the vast majority of 25 year with-profits endowment policies are now are producing lower returns than they did last year and the year before that.
That's not too good!
Are the people who sold us these useless products, and the people who continue to mismanage them ,receiving lower bonuses as a result of their failure?
I doubt it!
The Motley Fool has some advice about the options available to holders of these useless products.
According to a recent survey by Investment, Life & Pensions Moneyfacts the vast majority of 25 year with-profits endowment policies are now are producing lower returns than they did last year and the year before that.
That's not too good!
Are the people who sold us these useless products, and the people who continue to mismanage them ,receiving lower bonuses as a result of their failure?
I doubt it!
The Motley Fool has some advice about the options available to holders of these useless products.
Wednesday, March 19, 2008
Named and Shamed
Named and Shamed
As we all know, endowment policies have proven to be the worst, most costly financial scandal perpetrated on millions of home owners in living memory.
Money Management have produced a list of the worst performers.
Endowments managed by Resolution and Pearl, which bought up several closed-life funds, dominates the list.
Money Management shows that their endowment policyholders have earned less than in a deposit account over 25 years.
Resolution owns Life Association of Scotland, this was the worst performing endowment in the survey. It gave a 3.9% return over 25 years..yes you did read that correctly...3.9% over 25 years.
What exactly have they been doing with people's money?
Crusader and Britannia, also owned by Resolution, were the third and fourth-worst performers at 4.3% and 4.9% respectively.
National Provident was second with a return of 4.2%.
Clive Cowdery, Resolution's founder, has made millions from his dealing with these funds. However, his policyholders haven't.
Ironically some of Resolution's funds have done very well. Phoenix Assurance, owned by Resolution since September 2004, has paid out £317,800 on typical 25-year maturing endowment policies, reflecting an annual growth rate of 20%, or 1,168% more than the Life Association of Scotland policy.
Phoenix has paid out so much because it has been winding down its estate, and distributing the proceeds to 1,500 policyholders.
Resolution owned National Employers Life, with an annual growth rate of 11%, and Swiss Life, at 9.4%, also topped Money Management's list of 25-year policies.
Money Management reveals that some 10 year endowments have in fact lost money over 10 years, even though the FTSE All Share is up 43.3% during the last 10 years.
The worst 10-year policy, Pearl-owned London Life, fell by 1.6% a year while Resolution's Sun Alliance & London Assurance dropped 1.2%, Royal Life fell 0.6% and Scottish Mutual declined 0.4%.
The holders of these useless products are going to receive a nasty shock when these shortfalls crystallise.
As we all know, endowment policies have proven to be the worst, most costly financial scandal perpetrated on millions of home owners in living memory.
Money Management have produced a list of the worst performers.
Endowments managed by Resolution and Pearl, which bought up several closed-life funds, dominates the list.
Money Management shows that their endowment policyholders have earned less than in a deposit account over 25 years.
Resolution owns Life Association of Scotland, this was the worst performing endowment in the survey. It gave a 3.9% return over 25 years..yes you did read that correctly...3.9% over 25 years.
What exactly have they been doing with people's money?
Crusader and Britannia, also owned by Resolution, were the third and fourth-worst performers at 4.3% and 4.9% respectively.
National Provident was second with a return of 4.2%.
Clive Cowdery, Resolution's founder, has made millions from his dealing with these funds. However, his policyholders haven't.
Ironically some of Resolution's funds have done very well. Phoenix Assurance, owned by Resolution since September 2004, has paid out £317,800 on typical 25-year maturing endowment policies, reflecting an annual growth rate of 20%, or 1,168% more than the Life Association of Scotland policy.
Phoenix has paid out so much because it has been winding down its estate, and distributing the proceeds to 1,500 policyholders.
Resolution owned National Employers Life, with an annual growth rate of 11%, and Swiss Life, at 9.4%, also topped Money Management's list of 25-year policies.
Money Management reveals that some 10 year endowments have in fact lost money over 10 years, even though the FTSE All Share is up 43.3% during the last 10 years.
The worst 10-year policy, Pearl-owned London Life, fell by 1.6% a year while Resolution's Sun Alliance & London Assurance dropped 1.2%, Royal Life fell 0.6% and Scottish Mutual declined 0.4%.
The holders of these useless products are going to receive a nasty shock when these shortfalls crystallise.
Thursday, March 13, 2008
The Endowment Rip Off
The Endowment Rip Off
Underlying funds held by insurance companies have risen by an average of 6% over the last year. This in theory should be good news for the millions of people holding useless, underperforming with-profits endowment policies.
Unfortunately, as with all endowment policy matters, what at first appears to be an opportunity for the hapless policy holder to earn a respectable return turns out to be an opportunity for the life insurance companies to take "a dip".
The biggest and the "best" of Britain's life insurers have in fact reduced their payouts by 3% last year (remember the funds they "manage" on our behalf have actually risen by 6%).
This cut in payouts has cost the endowment policy holders around £8BN, according to The Times.
The Times quote Tom McPhail, at Hargreaves Lansdown:
"Stock markets have risen substantially since the end of the bear market in 2003, but final payouts keep on falling.
It just doesn't add up."
That's putting it politely!
We would be better off having "invested" our money in a "bog standard" savings account over the last 10 years.
Simple!
Because they can!
Insurers have discretion over how much of the gain they pass on, therefore they choose to keep the money for themselves.
A report for the trade body Actuarial Profession expects payouts to continue to fall by 3% per annum until 2020.
We are being ripped off by the insurance companies, and no one in the regulatory authorities is doing anything about it.
Underlying funds held by insurance companies have risen by an average of 6% over the last year. This in theory should be good news for the millions of people holding useless, underperforming with-profits endowment policies.
Unfortunately, as with all endowment policy matters, what at first appears to be an opportunity for the hapless policy holder to earn a respectable return turns out to be an opportunity for the life insurance companies to take "a dip".
The biggest and the "best" of Britain's life insurers have in fact reduced their payouts by 3% last year (remember the funds they "manage" on our behalf have actually risen by 6%).
This cut in payouts has cost the endowment policy holders around £8BN, according to The Times.
The Times quote Tom McPhail, at Hargreaves Lansdown:
"Stock markets have risen substantially since the end of the bear market in 2003, but final payouts keep on falling.
It just doesn't add up."
That's putting it politely!
We would be better off having "invested" our money in a "bog standard" savings account over the last 10 years.
- A 10 year endowment policy from Friends Provident has returned a mind numbingly small 0.9% a year, compared with 1.6% from a 90 day deposit account.
- Prudential's fund grew by 7.2% last year. However, a typical maturing £50-a-month, 25 year Prudential endowment policy will now pay out £44,515. This represents a 5% cut on the £46,695 paid out on an equivalent plan that matured in 2007.
- A typical 25 year Commercial Union endowment policy will pay out £40,737. This is 7% down on the £43,697 paid out on an equivalent plan last year.
Simple!
Because they can!
Insurers have discretion over how much of the gain they pass on, therefore they choose to keep the money for themselves.
A report for the trade body Actuarial Profession expects payouts to continue to fall by 3% per annum until 2020.
We are being ripped off by the insurance companies, and no one in the regulatory authorities is doing anything about it.
Monday, March 10, 2008
Dwindling Returns
Dwindling Returns
The Times offers some advice to those who hold underperforming endowment policies which look like missing their targets:
"In the light of dwindling returns, investors should be asking themselves whether they want to keep their with-profits policies or head for the exit."
In essence, it is a keep or sell decision.
The Times offers some advice to those who hold underperforming endowment policies which look like missing their targets:
"In the light of dwindling returns, investors should be asking themselves whether they want to keep their with-profits policies or head for the exit."
In essence, it is a keep or sell decision.
Thursday, January 17, 2008
Commercial Union Cut Payouts
Commercial Union Cut Payouts
Those unfortunate endowment policy holders who save with Commercial Union are in for a very unpleasant shock this year.
A saver who put in £50 a month for 25 years from January 1 1983, (from age 29) will receive just £39,321. This is 10% down on the £43,697 paid out on a 25-year plan taken out in January 1 1982.
To add to the misery, it is 19.6% down on the £48,889 paid out two years ago.
The odd thing is the fund, in which these policies are invested, grew by 5.4% last year and 11.7% the year before.
Why the cut the cut then?
Will the senior management of Commercial Union be taking a cut in their bonuses too?
Will Commercial Union be cutting their management charges, given that the fund is not producing the payouts that holders were led to believe it would?
As ever, it the hapless long suffering endowment policy holder that is left to foot the bill for failure not the managers of the endowment company.
Those unfortunate endowment policy holders who save with Commercial Union are in for a very unpleasant shock this year.
A saver who put in £50 a month for 25 years from January 1 1983, (from age 29) will receive just £39,321. This is 10% down on the £43,697 paid out on a 25-year plan taken out in January 1 1982.
To add to the misery, it is 19.6% down on the £48,889 paid out two years ago.
The odd thing is the fund, in which these policies are invested, grew by 5.4% last year and 11.7% the year before.
Why the cut the cut then?
Will the senior management of Commercial Union be taking a cut in their bonuses too?
Will Commercial Union be cutting their management charges, given that the fund is not producing the payouts that holders were led to believe it would?
As ever, it the hapless long suffering endowment policy holder that is left to foot the bill for failure not the managers of the endowment company.
Wednesday, January 16, 2008
Norwich Union Cuts Payouts
Norwich Union Cuts Payouts
This has not been a good week, PR wise, for Norwich Union; and a very bad week for those who hold endowment policies with Norwich Union. Earlier it was reported that Norwich Union was using part of its inherited estate to pay off compensation claims, now it has announced that it is cutting back on payouts.
Norwich Union has 900,000 endowment policy holders, and has announced that despite 4 years of rising stock markets 90% are still in the red zone.
Last year the red zone was 89%.
Norwich Union has now announced a 2% cut in its payout on a typical policy.
The company has 69,000 mortgage endowments that will mature this year, half are expected to fall short by over £1K.
The rather strange thing about the cut in payouts is that the fund in which the policies are invested grew by 5.4%.
Why the cut then?
Will the senior management of Norwich be taking a cut in their bonuses too?
Will Norwich be cutting their management charges, given that the fund is not producing the payouts that holders were led to believe it would?
This has not been a good week, PR wise, for Norwich Union; and a very bad week for those who hold endowment policies with Norwich Union. Earlier it was reported that Norwich Union was using part of its inherited estate to pay off compensation claims, now it has announced that it is cutting back on payouts.
Norwich Union has 900,000 endowment policy holders, and has announced that despite 4 years of rising stock markets 90% are still in the red zone.
Last year the red zone was 89%.
Norwich Union has now announced a 2% cut in its payout on a typical policy.
The company has 69,000 mortgage endowments that will mature this year, half are expected to fall short by over £1K.
The rather strange thing about the cut in payouts is that the fund in which the policies are invested grew by 5.4%.
Why the cut then?
Will the senior management of Norwich be taking a cut in their bonuses too?
Will Norwich be cutting their management charges, given that the fund is not producing the payouts that holders were led to believe it would?
Tuesday, November 27, 2007
Bleak News
Bleak News
Money Management's upcoming December issue survey shows a bleak outlook for those who hold endowment policies.
On average, a 25 year policy 10 years into its term needs to grow 6.9% per annum until the end of its term in order to meet its £50K sum assured.
The average 25 year policy 15 years into its term needs to grow 8.6%, while policies 20 years into their term need to grow an average of 8.2%.
Given the lousy levels of returns on most endowment policies, these required returns are very unlikely to be achieved and endowment holders can expect serious shortfalls when their policies mature.
Congratulations to the fund managers for doing such an "excellent" job of "managing" these policies, yet still being able to pay themselves a very nice management fee each year despite "managing" loss making policies.
Money Management's upcoming December issue survey shows a bleak outlook for those who hold endowment policies.
On average, a 25 year policy 10 years into its term needs to grow 6.9% per annum until the end of its term in order to meet its £50K sum assured.
The average 25 year policy 15 years into its term needs to grow 8.6%, while policies 20 years into their term need to grow an average of 8.2%.
Given the lousy levels of returns on most endowment policies, these required returns are very unlikely to be achieved and endowment holders can expect serious shortfalls when their policies mature.
Congratulations to the fund managers for doing such an "excellent" job of "managing" these policies, yet still being able to pay themselves a very nice management fee each year despite "managing" loss making policies.
Monday, October 08, 2007
Useless
Useless
Much like the depressing inevitability of the return of an unloved season I received two red warning letters from my endowment provider, Legal & General (L&G), the other day. I am the "proud" owner of two endowment policies taken out with Legal & General, one in 1987 and the other in 1991.
Needless to say, neither are on target to reach their objective (ie to pay off my mortgage).
Legal & General claim, using three projected returns, that the 1987 policy (target £35000) will produce the following results:
-4% shortfall £5400
-6% shortfall £2700
-8% surplus £ 300
The 1991 policy (target £39700) will produce the following shortfalls:
-4% shortfall £10200
-6% shortfall £ 7500
-8% surplus £ 4600
Hardly a "stellar" performance is it?
The question remains though, how is it that some endowment companies have been able to manage their funds sufficiently well so as not to produce a shortfall whilst Legal & General haven't?
Much like the depressing inevitability of the return of an unloved season I received two red warning letters from my endowment provider, Legal & General (L&G), the other day. I am the "proud" owner of two endowment policies taken out with Legal & General, one in 1987 and the other in 1991.
Needless to say, neither are on target to reach their objective (ie to pay off my mortgage).
Legal & General claim, using three projected returns, that the 1987 policy (target £35000) will produce the following results:
-4% shortfall £5400
-6% shortfall £2700
-8% surplus £ 300
The 1991 policy (target £39700) will produce the following shortfalls:
-4% shortfall £10200
-6% shortfall £ 7500
-8% surplus £ 4600
Hardly a "stellar" performance is it?
The question remains though, how is it that some endowment companies have been able to manage their funds sufficiently well so as not to produce a shortfall whilst Legal & General haven't?
Thursday, August 30, 2007
A Bumper Year
A Bumper Year
I received my 2006 with profits statement from my endowment provider (Legal & General) yesterday. Imagine my delight when I read the following in the covering note:
"We're pleased to be able to tell you that the investments underlying your policies have performed well during 2006 generating a return of 12% (before tax and charges) over the year."
Splendid!
Unfortunately, on delving deeper into the document I saw that the actual portion of that 12% allocated to me (re annual bonus rate applied to existing bonus and annual bonus rate applied to basic sum assured) was a less than staggering 2%.
The reason for this disparity?
I wonder why L&G don't disclose their charges in this this document?
What a joke!
I received my 2006 with profits statement from my endowment provider (Legal & General) yesterday. Imagine my delight when I read the following in the covering note:
"We're pleased to be able to tell you that the investments underlying your policies have performed well during 2006 generating a return of 12% (before tax and charges) over the year."
Splendid!
Unfortunately, on delving deeper into the document I saw that the actual portion of that 12% allocated to me (re annual bonus rate applied to existing bonus and annual bonus rate applied to basic sum assured) was a less than staggering 2%.
The reason for this disparity?
- Tax, fair enough, that takes the 12% down to 11% according to L&G
- Charges, which are not disclosed
- Smoothing, to ensure that "short term fluctuations" in the value of investments are not immediately reflected in payouts
I wonder why L&G don't disclose their charges in this this document?
What a joke!
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