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?
Showing posts with label smoothing. Show all posts
Showing posts with label smoothing. Show all posts
Monday, October 27, 2008
Monday, September 08, 2008
Norwich Union Cut Bonuses
Norwich Union Cut Bonuses
Norwich Union have delivered another blow to the tattered reputation of the life assurance industry, and its much derided and failed product of endowment policies.
Norwich have told their 2.4M with-profits policy fund holders that it will cut policies maturing this year by 11%, in comparison with those that matured last year.
The phrase "with-profits" sounds somewhat hollow does it not?
I wonder why it is that no one has tried to sue the life assurance industry for misrepresenting their product by using that phrase?
The theory of with-profits policies is that they are meant to smooth returns. However, given the ongoing cuts in these policies, that theory appears to be half baked. The life assuring companies have quite clearly mismanaged these policies.
The cuts made by Norwich Union are in line with the fall in the FTSE 100 index over the past 12 months, and that means that the "smoothing" has had no benefit or effect whatsoever.
The changes mean that payouts from Norwich's top-paying mortgage endowment fund dropped by 5%, or £2,144, overnight.
Those who hold these useless, mismanaged polices should take a class action against the life assurance industry for:
-misrepresentation
-mis-selling
-mismanagement
-overcharging
Norwich Union have delivered another blow to the tattered reputation of the life assurance industry, and its much derided and failed product of endowment policies.
Norwich have told their 2.4M with-profits policy fund holders that it will cut policies maturing this year by 11%, in comparison with those that matured last year.
The phrase "with-profits" sounds somewhat hollow does it not?
I wonder why it is that no one has tried to sue the life assurance industry for misrepresenting their product by using that phrase?
The theory of with-profits policies is that they are meant to smooth returns. However, given the ongoing cuts in these policies, that theory appears to be half baked. The life assuring companies have quite clearly mismanaged these policies.
The cuts made by Norwich Union are in line with the fall in the FTSE 100 index over the past 12 months, and that means that the "smoothing" has had no benefit or effect whatsoever.
The changes mean that payouts from Norwich's top-paying mortgage endowment fund dropped by 5%, or £2,144, overnight.
Those who hold these useless, mismanaged polices should take a class action against the life assurance industry for:
-misrepresentation
-mis-selling
-mismanagement
-overcharging
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!
Thursday, October 19, 2006
Endowment Misery Continues
Endowment Misery Continues
Quite unbelievably, even though endowment mortgages have been shown to be the worst fanancial product ever foisted on the unsuspecting British public in living memory, around 40,000 of these useless underperforming products were sold in the first six months of this year. Even worse, around 100,000 were sold last year.
It beggars belief that, despite the lousy performance and negative publicity surrounding these useless products, people are still prepare to fall for the salesman's patter.
It also beggars belief that life assurance companies have the balls to continue to sell them. Clearly money and profits come before reputation and integrity.
A smooth talking salesman can earn a commission equivalent to the first 18 months' premiums, just for selling the policy. He can then continue to get paid annual commission, as long as the hapless endowment owner continues to keep the plan going.
It is little wonder that many people in Britain have lost confidence in the life assurance industry, and the financial services sector as a whole.
Quite unbelievably, even though endowment mortgages have been shown to be the worst fanancial product ever foisted on the unsuspecting British public in living memory, around 40,000 of these useless underperforming products were sold in the first six months of this year. Even worse, around 100,000 were sold last year.
It beggars belief that, despite the lousy performance and negative publicity surrounding these useless products, people are still prepare to fall for the salesman's patter.
It also beggars belief that life assurance companies have the balls to continue to sell them. Clearly money and profits come before reputation and integrity.
A smooth talking salesman can earn a commission equivalent to the first 18 months' premiums, just for selling the policy. He can then continue to get paid annual commission, as long as the hapless endowment owner continues to keep the plan going.
It is little wonder that many people in Britain have lost confidence in the life assurance industry, and the financial services sector as a whole.
Monday, February 06, 2006
Standard Life Fails To Deliver
Standard Life Fails To Deliver
More bad news for people holding useless and underperforming endowment mortages.
Standard Life have warned their 2 million with-profits customers that policies maturing this month will pay out on average 5% less than before, on comparable policies; this is despite the fact that share prices are booming.
The annual bonus rates on conventional with-profits policies are unchanged, but terminal bonuses are down.
The maturity value of a Standard Life 50 a month, 25 year mortgage endowment policy is now £40,459 this month, that is a massive fall of 18% when compared to the same policy of £49,511 in February last year.
John Gill, Standard's UK life and pensions managing director finance, is quoted as saying:
"By smoothing returns, we have protected policyholders from the full drop in asset values between 2000 and 2002."
Others are not taken in by this pr hype.
Clive Scott-Hopkins, from independent financial advisers Towry Law, is quoted as saying:
"Standard Life is obviously losing its competitive edge with this very poor result. The Norwich Union typical endowment payout last month at £50,295 was 25% higher than these results."
Standard Life sold £7BN of equities in 2004 after guidance from the Financial Services Authority on "strengthening" its financial reserves.
The result being that it now unable to take advantage, or rather its hapless endowment policy holders are unable to take advantage, of the booming stock market.
Given the fact that other insurers have performed better than this (even if their endowment policy holders are also out of pocket), I would suggest that the holders of Standard Life policies should be considering asking some very hard questions indeed about the quality of management of their funds.
Indeed they may laso like to consider aksing some hard questions of the FSA, as to why it gave such absurd advice.
More bad news for people holding useless and underperforming endowment mortages.
Standard Life have warned their 2 million with-profits customers that policies maturing this month will pay out on average 5% less than before, on comparable policies; this is despite the fact that share prices are booming.
The annual bonus rates on conventional with-profits policies are unchanged, but terminal bonuses are down.
The maturity value of a Standard Life 50 a month, 25 year mortgage endowment policy is now £40,459 this month, that is a massive fall of 18% when compared to the same policy of £49,511 in February last year.
John Gill, Standard's UK life and pensions managing director finance, is quoted as saying:
"By smoothing returns, we have protected policyholders from the full drop in asset values between 2000 and 2002."
Others are not taken in by this pr hype.
Clive Scott-Hopkins, from independent financial advisers Towry Law, is quoted as saying:
"Standard Life is obviously losing its competitive edge with this very poor result. The Norwich Union typical endowment payout last month at £50,295 was 25% higher than these results."
Standard Life sold £7BN of equities in 2004 after guidance from the Financial Services Authority on "strengthening" its financial reserves.
The result being that it now unable to take advantage, or rather its hapless endowment policy holders are unable to take advantage, of the booming stock market.
Given the fact that other insurers have performed better than this (even if their endowment policy holders are also out of pocket), I would suggest that the holders of Standard Life policies should be considering asking some very hard questions indeed about the quality of management of their funds.
Indeed they may laso like to consider aksing some hard questions of the FSA, as to why it gave such absurd advice.
Tuesday, July 26, 2005
Misery For Scottish Widows
Misery For Scottish Widows
Bad news for those of you who hold with-profits policies with Scottish Widows, the maturity values of these policies have fallen again; despite the recovery of equity markets.
The value of an average 25-year with-profits contract has dropped in the past six months, rather worrying given the fact that the stock market has been rising.
Scottish Widows said that payouts were lower because funds were invested over different time periods, yielding different earnings.
It still expects its £18BN with-profits fund to produce a pre-tax investment return of 15% in the 12 months to end-June, compared to 7.3% in the same period the previous year.
However, the company warned that maturity payouts could continue to fall, even in years where positive investment returns were achieved.
The Widows have tried to explain the reason for the fall as being due to the returns on with-profits, which aim to smooth payouts by holding back some of the return in good years to pay out in the bad, as being historically "significantly higher" than those of late.
To my simple view that means that they were paying out too much in earlier years, and not applying the "smoothing principle" properly.
Now there are two possible reasons for this:
1 Poor management of the policy
2 Deliberate over payment to attract new customers and shareholders
A typical 25-year endowment with Scottish Widows, maturing on 1 August, dropped 2.8% on February and 7.4% on the year. A mortgage-linked endowment over the same period fell 2.8% in value since February and 8.1% over the past year.
Bad news for those of you who hold with-profits policies with Scottish Widows, the maturity values of these policies have fallen again; despite the recovery of equity markets.
The value of an average 25-year with-profits contract has dropped in the past six months, rather worrying given the fact that the stock market has been rising.
Scottish Widows said that payouts were lower because funds were invested over different time periods, yielding different earnings.
It still expects its £18BN with-profits fund to produce a pre-tax investment return of 15% in the 12 months to end-June, compared to 7.3% in the same period the previous year.
However, the company warned that maturity payouts could continue to fall, even in years where positive investment returns were achieved.
The Widows have tried to explain the reason for the fall as being due to the returns on with-profits, which aim to smooth payouts by holding back some of the return in good years to pay out in the bad, as being historically "significantly higher" than those of late.
To my simple view that means that they were paying out too much in earlier years, and not applying the "smoothing principle" properly.
Now there are two possible reasons for this:
1 Poor management of the policy
2 Deliberate over payment to attract new customers and shareholders
A typical 25-year endowment with Scottish Widows, maturing on 1 August, dropped 2.8% on February and 7.4% on the year. A mortgage-linked endowment over the same period fell 2.8% in value since February and 8.1% over the past year.
Sunday, January 09, 2005
Three Cheers for Liverpool Victoria
Three Cheers for Liverpool Victoria
Liverpool Victoria, the UK's largest friendly society, announced this week that all of its currently maturing mortgage endowment policies would receive a surplus on top of the mortgage amount covered.
In other words, those who hold endowment polices with Liverpool Victoria will receive a small profit over and above the mortgage.
Malcolm Berryman, Liverpool Victoria's group chief executive, said:
"The strong performance of our with-profits fund has ensured a surplus for all of our mortgage endowment policies that have matured or are currently maturing..In addition, our unconditional guarantee gives total peace of mind to our members for the future...."
Liverpool Victoria confirmed that none of its 6,000 mortgage endowment policyholders will suffer a shortfall, whatever happens to future investment returns.
It has made a financial provision to cover this guarantee, this will not have any adverse impact on future financial performance.
Now let us compare this excellent piece of news, with the dismal announcements made by the life assurance industry recently.
After all, they have all faced the same declining stock market!
The answer lies in the manner in which the companies manage their funds. Liverpool Victoria were more cautious when it came to paying out vast annual bonuses, in years of high returns.
They understood the concept of "with profits", namely that the profits made in one year should be used to smooth returns in the years of poor performance.
Unfortunately, it seems that many other "big names" in the "profession" chose to go for big bonuses in order to attract customers.
Needless to say, famine follows feast; when the stock markets started to fall, and with it investment returns, these companies that had paid out super inflated bonuses had nothing left in the cupboard to smooth things over with in the lean years.
I would argue that, in addition to persuing these companies for "mis-selling" polices, people, the FSA and the Treasury Select Committee should be going after them for mismanaging the funds.
After all if one company can produce a surplus whilst operating in the exactly the same market, why couldn't the others?
Liverpool Victoria, the UK's largest friendly society, announced this week that all of its currently maturing mortgage endowment policies would receive a surplus on top of the mortgage amount covered.
In other words, those who hold endowment polices with Liverpool Victoria will receive a small profit over and above the mortgage.
Malcolm Berryman, Liverpool Victoria's group chief executive, said:
"The strong performance of our with-profits fund has ensured a surplus for all of our mortgage endowment policies that have matured or are currently maturing..In addition, our unconditional guarantee gives total peace of mind to our members for the future...."
Liverpool Victoria confirmed that none of its 6,000 mortgage endowment policyholders will suffer a shortfall, whatever happens to future investment returns.
It has made a financial provision to cover this guarantee, this will not have any adverse impact on future financial performance.
Now let us compare this excellent piece of news, with the dismal announcements made by the life assurance industry recently.
- AXA has announced that it will be reducing their payouts
- Standard Life will reduce its payouts to its 2.4M policy holders
- The Actuarial Profession, the body which represents those who run with-profits funds, has warned that the majority of customers will face falls in value of their policies for several years to come
After all, they have all faced the same declining stock market!
The answer lies in the manner in which the companies manage their funds. Liverpool Victoria were more cautious when it came to paying out vast annual bonuses, in years of high returns.
They understood the concept of "with profits", namely that the profits made in one year should be used to smooth returns in the years of poor performance.
Unfortunately, it seems that many other "big names" in the "profession" chose to go for big bonuses in order to attract customers.
Needless to say, famine follows feast; when the stock markets started to fall, and with it investment returns, these companies that had paid out super inflated bonuses had nothing left in the cupboard to smooth things over with in the lean years.
I would argue that, in addition to persuing these companies for "mis-selling" polices, people, the FSA and the Treasury Select Committee should be going after them for mismanaging the funds.
After all if one company can produce a surplus whilst operating in the exactly the same market, why couldn't the others?
Sunday, September 19, 2004
More Misery
The 350,000 of you who hold endowment policies with Scottish Life, will be feeling even worse about your underperforming policies.
Scottish Life have cut their payouts on their "with profits" polices, for the second time this year.
The polices are now so, I will use an accounting term here, "crappy" that they are not even keeping pace with inflation.
The returns on the Scottish Life polices are a "staggering" 1.1% (inflation is around 2.5%), the FTSE has grown by 6% since January 2004.
Well done lads, are you proud of your product?
Now, Scottish Life (and indeed all the other "professional" life assurance companies) claim that the cuts are to "smooth" the returns on the policies; as a result of the falls in the FTSE between 2000 and 2001.
I would like to ask the following:
Aside from those two years, the FTSE has performed quite well over the past decade (allegedly the longest "bull run" in living memory); where the hell has the money gone?????
The 350,000 of you who hold endowment policies with Scottish Life, will be feeling even worse about your underperforming policies.
Scottish Life have cut their payouts on their "with profits" polices, for the second time this year.
The polices are now so, I will use an accounting term here, "crappy" that they are not even keeping pace with inflation.
The returns on the Scottish Life polices are a "staggering" 1.1% (inflation is around 2.5%), the FTSE has grown by 6% since January 2004.
Well done lads, are you proud of your product?
Now, Scottish Life (and indeed all the other "professional" life assurance companies) claim that the cuts are to "smooth" the returns on the policies; as a result of the falls in the FTSE between 2000 and 2001.
I would like to ask the following:
Aside from those two years, the FTSE has performed quite well over the past decade (allegedly the longest "bull run" in living memory); where the hell has the money gone?????
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