Still stuck in a "zombie" fund?

As the with-profits bonus season draws to a close millions of investors have once again been reminded that this type of investment is fundamentally flawed.

Even though stock markets have soared over the past four years the bonuses paid out by some of these funds have been slight.

Prudential, with 12% growth over the year has kept its annual bonus rates at on some endowments at 1%.

Worst of all are the funds closed to new business. Policyholders in these "zombie" funds were led to expect improved performance when firms such as Resolution and

Pearl

started to snap them up in 2004.

But they have been told that they are unlikely to receive any bonuses again this year.

Why don't investors quit, you might ask? Because in the majority of cases anyone thinking of doing a runner and putting their cash elsewhere faces stinging penalties for pulling out. The truth is they are trapped and have no where to turn.

If you are fed up being a with-profits investor, be it in a zombie or standard fund, and think the Financial Services Authority should be taking action, please let us know your thoughts.

Comments

[John McDonald]

I have an endowment with London Life. It matures in 2009. I have asked three times for information on terminal bonus payments made over the last five years - factual information that should be readily available.

I need the information so that I can make an informed decision about what to do with the policy as London Life have made 0% annual bonus payments for the last few years. Can no-one help me to obtain this information?

[M.C.E.Hemery]

Once again tens maybe hundreds of thousands of people with "With Profits Policiesa" are receiving annual letters from their Insurance Companies confirming outrageously low levels of regular bonuses coupled with vague promises of improved levels of final bonus and explanations of that wonderful excuse called "smoothing".
In my case it is the Norwich Union to whom every year for the last twenty three years I have dutifully paid £3000 in premia.Today the estimated maturity value of my policies (assuming that those mysterious final bonuses happen) are 20% less than they were in 1999.Norwich Union employs a gang of people who every year answer complaints with pages of explanation which is no more than obfuscation.Now they dont even bother to send out final bonus explanations but refer you to their website (too bad for you if ytou do not own or know how to operate a computer).
One could go on and on about the Life Insurance industry.It is plainly dishonest,maladministered and a financial disaster for everybody other thn it's shareholders.
If ever there was a case for investigation and regulation and prompt action it is this industry.They should be compelled to make public (1) Detailed accounts of the "With Profits Funds"
in particular charges being made to them and the justification for such charges (2)the distribution of profits being made to the plans (to meet their original guarantees?!) (3) the amounts being paid to brokers in commission in year one and thereverafter (4) the provisions set aside for terminal or final bonuses and the security of those funds.(5)All oother points relating to "With Profits Funds" that those more expert than I on the subject can raise.
Yes there is an urgent need for a body to take instant action to compel this industry to get it's act in order and to protect the insured.This body should be backed by legislation which where appropriate is retrospective and representative of the Insured not the Insurance Industry.
We hear daily of death from all sorts of causes in this country and the measures necessary to prevent them.
I wonder how many older people suffer heart attacks and strokes brought about by the realisation after many years that they have been skilfully manipulated and robbed by many elements of the Financial Services Industry in particular the Life Insurers.
It seems to me that the opposition parties in Government could do worse than to do something about this right now before we, the insured, are all dead and gone.

[arthur]

We are pensioners who have invested a one off premium with NU 8 years ago with originalloy £16,000. but after 3 years we took out £3,00O paying a penalty. Since then our investment has been £13,000. Our With Profits has also reduced the capital value after 8 years, and we will be offered a paltry sum for a minor share of inherited estate.
Looking at the comments it seems that almost the whole insurance industry wants cleaning up, by govt.legislation or the FSA
We will in future think very carefully before taking out any kind of insurance and expect millions of people will think the same way now this situation has come to light in the public domain.

[Eugene Fenwick]

I’m sure ex Sun Alliance policy holders will have a big thank-you to Mr Clive Crowdry!! As chairman of the Resolution group his wealth as risen inversely proportional to the demised of my endowment policy. He as accumulated some 100 million pounds of personal wealth since setting up Resolution 5 years ago.
One million Ex Sun Alliance policy holders have been herded in to the Resolution slaughter house. The FSA who approved the transfer of our policies are as guilty as Resolution they will do nothing but look after these fat cats and even going as far to say that the huge exits fees are fair.
Lets form a ex Sun Alliance action group and fight back against the unfairness of it all. My email address is dennisfenwick@hotmail.com

[Helen Clark]

I have a 'with profits' pension fund with Zurich. Whereas I appreciate that I can't expect profits when there are'nt any I am amazed that for 2 years running I have received letters stating 'Despite the fund's strong performance in 2004 and 2005 the guarantees given to some investors are still greater than the performance of the fund' and as my plan falls into this category IT WOULD NOT BE FAIR to other investors to increase my plan's guarantee and regrettably we cannot add a regular bonus.' So I'm damned if it does badly and damned if it goes well. So what advice to I give to my sons about pensions and savings. No wonder they live for the moment!

[paul west]

I could post another sad story of being mis sold endowments, mine like others posted, were from Sun Alliance and sold onto Resolution Life, (I've lost thousands).
Rather than this though how about the Times championing a campaign to fight for their readers rather than repeating pretty much the same story every few weeks, this is a 'sleeping giant' that needs awakening.
Some investigative reporting into where all the interest is going, the actual numbers of policies involved and perhaps most fundamentally, was the sale of our policies to Resolution life and of others actually legal?
This needs to come out of the Money section and onto the front page...

Yours Sincerey
Paul West

[T Sellers]

I have also bad experience of the returns through friends Provident- but at least they have finally removed the MVA. My other investment with Legal & General remains trapped with an MVA shockingly and unjustifyably still applied. In addition, it also reaps a pathetically low % return- which is less than one would get in a normal bank account. Along with other writers I am disillusioned with the savings idea altogether. Sadly all this frustration and ranting changes nothing, and as usual 'they' are laughing all the way to the bank. There was talk of a protest through MPs about 2 years ago- but I heard no more. We seem to be suffering a double whammy- an MVA which traps us in, and then, to add insult to injury, the returns are insignificant.
T Sellers

[Rob Lawrence]

I have been in a WPB for 6 years. During that time I ahve complained to the FSA several times and have received pathetic responses. I have enclosed newspaper articles showing quite disguting situations that people are in and again the response is totally negative. I would like to find a blog where a few like minded people could organise a protest eg outside a high street bank that is the supplier and at least cause them embarrassment. Like so much going onin the country people feel impotent to show their feeling. In my case I am with Scottish Mutual International with an unbelievable MVA off approx 23% theu have a linked company via Abbey called Scotthish Mutual. Well they have both gone to Reolution. Prior to the takeover Mutual put up their MVA by a couple of points and International had the most bullish annual outlook sinc I have been with them. I have no doubt they colluded and decided it would be too obvious for them to both do the same thind but it was in both cases done to stop people coming out of thepolicies before the takeover. In Mutuals case it needs to be looked at against a trend of slightly decreasing MVAs and no case for putting up the MVA at all. I pointed out to the FSA that these companies have not the slightest fear that they will be stopped from doing just what they like by the FSA.
I will stop going on now but it is a patently disgusting situation

Regards

Rob

[P. V. Angus Ashton]

After reading your article in yesterdays Sunday Times I thought you would be interested in my recent experience with Scottish Life relating to the "with profits" pension I have with them.
In December 2006 my IFA asked them for a transfer valuation on my with profits pension with Scottish Life and again in January 2007. The value had dropped by £22,759 due to a reduction of terminal bonuses on my plan
I wrote them a letter on January 26th asking for an explanation as to why the transfer value had reduced by 4.7% despite the rise in the worlds stockmarket and general interest rates.
To date I have received a short reply from them saying "Unfortunately due to systems restrictions I am unable to calculate the exact amount of terminal bonus included in your policy on December 27th 2006"
I feel even more aggrieved after reading the comparison tables on your article whereby the insurers listed are at least paying a slight increase!
I will be taking the matter further.

[Mike Ellacott]

Sun Alliance sold my mortgage endowment policy to Phoenix (The Resolution Group. On maturing last year I only received £18,000 of the £26,000 I had been promised by the Sun Alliance sales rep 20 years ago.

Now our joint With Profits Bond still has a 16% redemption policy after holding it for 7 years. Even the Phoenix customer support person on the phone admitted this was the most punative penalty they had! This means my initial investment of £20,000 is only worth £19,282 if I cash it in. It paid only 0.4% interest last year.
I wrote to the CEO of resolution Paul Thompson and received 2 letters back from David Isaacs (Client Liaison Unit) and Richard Cole (Customer Manager Administration Complaints) saying I am trapped in a policy that gives no return.
I have also written to the Financial Ombudsman as companies that are this incompetant with their clients money should not be allowed to offer financial services in my opinion.

[Denis Thair]

My wife had a whole life with profit policy with London Life, which was taken over by Pearl. They refuse to say whether or not they are paying a final bonus and what rate of return they are getting on invested funds, so it is impossible to decide whether or not to make the policy paid up. Is there no effective regulation of these predatory companies?
Denis Thair

[bruce powlson]

I have two mortgage endowments which I took out between twenty and twenty three years ago. I was told at the time that these were the best way of buying my first house as I would pay less after tax and would receive a lump sum of several thousand pounds over the ammount needed to pay off the mortgage.
What a fool I was.
the policies both of twenty five years mature when I am sixty eight and again when I am seventy one.How was I to pay premiums when I had to stop work when I was sixty four?
I did complain but was told that the policies were too old to be considered for compensation. Neither will reach the original tagget ammount let alone give any extra money for my retirement.
I now consider I was badly advised by salesmen with commission to gain and both insurance companys should be ashamed of allowing plans to be sold that continue after normal retirement age. They are worse than the sales people!!

[John Saddler]

\Recent maturing \policy info from Phoenix advises investment returns & other profits for 2003 to date have been lower than expected. As a result minimal bonus rates have had to be declared. With Footsie index up 41.8% over 3 yrs, one wonders just what returns were being expected ! How on earth do they justify 0.25% bonus rate ?!!

[alex hamilton]

my scottish widows 20 year policy matures shortly with a predicted payment of around £12 thousand.the example featured in their literature was of a man same age as myself paying the same premium receiving over £30 thousand.a huge difference.

[Ronnie Dean]

I have several ex Royal and Sun Alliance pension funds that are now with Phoenix Life Group. They are performing very poorly and the penalties are so high that should I move them now I doubt I would regain the value by my retirement age.
I feel let down as I have made provision for my retirement only to see it's value errode. I never had any choice with my funds being sold on to Phoenix but must suffer the consequence.

[Christopher Goard]

I had a letter from NPI / Pearl in August 2006 stating "Earlier this year we found it necessary to withdraw projections .. due to a problem with our systems...we have taken the opportunity to refine our calculation approach... the changes mean that in many cases (but not all) .. fund values will have increased. The results?

Current fund transfer death
value value value

2005
£43,749 £26,250 £43,749

2006
£ N/A? £26,641 £38,745

The results?

1. No specified fund value for 2006
2. An increase of 1.5% of the transfer value
3. A decrease in the death value of 11.4%
4. A transfer penalty in 2005 of 40%

Great performance! And if I don't like it all I have to do is give NPI £12,104 and I can leave.

The unanswered questions I have for NPI / Pearl?

1. In a rising market why have you lost money on my policy?
2. What are doing to put it right?
3. When will I see competitive performance?
4. How much have you made on this policy?
5. When can I transfer this policy without punative charges?
6. When can we be sure your systems are accurate and that we can trust the figures you send?
7. When can we believe that the information you send is accurate and valid and doesn't include statements that include "the values are not guaranteed, and we may change the values & the basis of calculation on any future date without notice". It's difficult to read this & not feel that these funds will be manipulated to suit NPI/Pearl first and policy holders a very distant second.

[Morris Butchart]

Some 4 years ago after receiving notification from NU we decided to end the endoment portion of our mortgage and complain to NU. NU upheld our mis selling complaint and offered some £4000.00 in compensation. NU denied liability for the endowment extending beyond our retirment and any gaurantees given on risk despite the paper work the produced having been altered to change the wording on risk. We had difficulty understanding the basis of the £4000.00 but our questions produced the advice accept within 6 months or take it up with the FOS.

Initial telephone conversations with the FOS were encouraging but the formal complaint took some 3 years to provide a reply.

That reply advised us the NU had been asked to recaclculate the offer. As the original offer had advised that all premiums paid would be refunded back to the date the mortgage changed and the £4000.00 would attract interest at 8% we thought that this was the recalculation involved.

When the revised offer arrived it was to a different format which we could not relate to the previous format adopted by NU so once again we had difficulty understanding the offer.

Questions to Nu and the FOS were to say the least obscure.

After various communications and requests for detailed explanations the FOS advised us that we should accept the latest offer as NU had advised that otherwise the £4000.00 compensation would be redused to £0.00 due to savings we had accrued over the four years by changing to a repayment mortgage.

It then turned out that NU were continuing to calculate the loss between payment by interest only as a repayment mortgage and repayment by a straight repayment mortgae. Over the four or so years the result was that the £4000.00 compensation had been reduced to £0.00.

Had we accepted the rvised offer(s) we would have found that far from £4000.00 plus 8% interest and if we choose to end the policy four years at £90.00 per moth plus 8% interest would not as we had understood be the minimum. We would in fact have been paid somewere between £4000.00 and £0.00.

Communications back and forth with the FSO on our understanding of the information provided by the FSA that compensation calculations related to the date at which the mortgage was converted to a repayment mortgage The FSA Fact Sheet Endowment complaints explains "Compensation is calculated up to the point when the endowment policy ceased to be used to repay your mortgage." produced again vague responces from the FOS and the advice that they were investigating our complaint.

Apart form monthly letters from the FOS advising that they are still dealing with our complaint we are no further forward. If NU are allowed to calculate our financial situation as the wish to our compensation will by now be £0.00.

We have repaetedly received communications from the FOS telling us that if we did not contact them within 2 weeks thay would close our complaint. On one occassion we returned from holiday to find that we had a few days to reply. Yet when we asked the FOS if it was acceptable for NU to take three months to reply to their questions we were told yes.

Morris Butchart

[T. Turner]

Your article to-day mentions that CMI has removed all MVA's on policies between 1997-2002. This is certainly not the case for Off-shore with-profit funds. My own fund invested in 100,000 Euros in 2001/Q1 still has 16 % MVA ! This is in spite of written statements at commencement that MVA would only be applied in exceptional circumstances. Further, the misleading impression was given that partial encashments could be made w/o penalty.

[Brian]

I quite agree, I am with Friends Provident and paid £716 in premiums only to see my endowment increase by 0.1% last year.
As the endowment started in 1983 the FSA are useless. The Financial Advisers say " Wonderful advice" and Friends ignore me completely.I am sick of the whole business and will certainly never invest with Friends again or recommend anyone have any thing to do with these dreadful companies.

Brian

[John Blackmore]

With profits funds have never been my idea of a good investment but I have to point out that for many the situation is now improving and now is not the time to panic and run. Many with profits funds have made reasonable returns over the last 4 years but have not paid out all of the profits - this is as it should be. Expect Terminal bonuses to increase first for older policies then for younger policies and finally reversionary bonuses may be increased - but hopefully only when it is prudent to do so. For many funds there is a greater danger of loss in surrendering now than there is in being patient for a few more years.