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With Profits Policies - Time to Review

MoneyWise Autumn 2006

Do you have a with profits bond, with profits pension plan or other with profits policy?

The world of with profits policies has greatly changed in the last half dozen years. For example, over half of the insurers involved in with profits now run closed funds, according to a report issued last year by the Financial Services Authority (FSA).

Alongside the closures there have also been several sales of closed funds to new, specialist owners. For example, if you have a policy from companies as diverse as Royal & Sun Alliance, Britannic or Swiss Life, you are now under the wing of Resolution plc. The trend is continuing: in September Resolution completed the purchase of Scottish Mutual and Scottish Provident. The closure of a fund or its sale does not necessarily mean that future performance will be poor, just as remaining open is no guarantee of success. As the FSA said in its 2005 report, ‘performance depends squarely on which fund a policyholder has invested in and also what type of policy they have in that fund.’

Undertaking a review of your with profits policy is a task best left to experts. Some of the questions we typically consider are:

Does the policy still meet your needs?

What level of guarantees does the policy offer you?

How large is the projected maturity value assuming a realistic investment return?

How has the insurance company invested the portfolio underlying the with profits fund?

Is the life company financially strong?

Is the life company offering you a reasonable surrender value for your policy?

Are there any options for an internal fund switch and are they worthwhile?

Does the policy contain any options to cash in without penalty at a pre-set time?

Do not surrender or switch a with profits policywithout taking specialist independent advice; this is one area where do-it-yourself financial planning can be very expensive.

A new investment may not equal or outperform the original. Values can go down as well as up and you may not get back the full amount invested.