Both Standard Life and Norwich Union have made statements recently giving an optimistic outlook for the future of with profits. The statements come following a comment made by the Office of Fair Trading saying that the upheaval of with profits could cause a "national nightmare".
Both Standard Life and Norwich Union claimed that there was still a demand for with profits policies amongst investors. Norwich Union’s senior actuary said that whilst demand continued there was still a problem regarding transparency of how the funds are made up and run. He also commented that both providers and the industry regulator, The Financial Services Authority, are addressing the transparency concerns. He also confirmed that Norwich Union would continue to offer with profits policies.
Standard Life also confirmed their strong commitment to with profits policies. The group chief executive said, "there is no question of our ceasing to sell with profits". He also said that such policies are in demand from policyholders and that Standard Life’s payouts are amongst the best in the industry.
Another comment made was "future returns will not be compromised because of past investment performance".
Our View
As we have said before, with profits policies do have a place for certain investors. Increased confidence from the bigger providers, such as Norwich Union and Standard Life has emerged since both of them confirmed past poor returns would not affect future returns.
When purchasing with profits policies, investors need to be aware of the provider’s financial strength and how the returns are produced. If there is less investment in equity investments and the stock markets continue to rise, returns are likely to be lower over the longer term. Alternatively, if equity investment within the fund is high, bonuses will be affected more harshly if stock markets fall.
For existing investors, some providers are not paying with profits bonuses at the moment. The next declaration of the profits made will be crucial when seeing if bonuses will start to be paid again.
For those investors currently in ‘closed’ with profits fund, advice on whether to stay or go is crucial.
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