Standard Life has issued a press release to us and the market stating that it has no intention of closing its with profits funds.
The move follows rumours in the industry that it may have been planning to do just that and possibly launch new with profits funds.
Our view
This is a bold statement. With profits funds are very much a 'grey area' in that insurance companies issue bonuses based, supposedly, on the underlying performance of the assets inside the with profits fund.
Many 'with profits' funds have suffered from poor returns over the last few years and as a result bonus rates, i.e. the interest you receive on your plan has been consistently falling. So what is the easiest thing for an insurer to do? Simply close the existing fund to new investors, launch a new fund and the new investors get the potential to invest in a fund that has started when markets are beginning to recover.
"So what?" we hear you say. This then becomes a very clever marketing tool where the provider who has launched a new fund can then market the new headline bonus rates or returns as opposed to using perhaps the less headline grabbing rates that existing investors will be receiving, if any.
Insurance companies who do this are just playing a game with marketing. If Standard Life maintain their stance then it is welcome as a company that is being honest with investors rather than others that may be trying to 'hoodwink' potential new investors.