It is estimated that there is £450billion of UK savers and
investors money sat in stagnant or overpriced investment funds*.
Many savers and investors have not reviewed their savings to
ensure the ongoing suitability and efficiency of them, and as such may be
losing out by not taking action.
From the 1970’s, With Profit funds were very popular
investments for many, including for endowments which were designed to pay off
mortgages, amongst other objectives. They were sold as generally being low
risk, and employed a tactic called ‘smoothing’.
Smoothing is where the life company running the fund would
hold back profits from the good years in order to apply the reserves to the bad
years, aiming to give the investor a smooth return over time.
Since 2000 however, many with profit funds have cut their
bonuses – and in some cases removed them altogether, meaning that many
investments simply are not growing. This is bad news considering that the total
UK inflation since 2000 has been 55%**.
It is estimated that With Profit investments account for
£220billion across 12million savers in the UK*.
It might not be all bad news though, because there are some
With Profit funds out there which will pay a healthy ‘final’ or ‘terminal’
bonus, depending upon the year the funds were invested and the market
conditions in the meantime.
Many With Profit funds do not explicitly state the cost of
running the fund either, so investors do not know how much is being retained by
the life company and what is being distributed to investors. This illustrates
the importance of regularly reviewing an investment or a portfolio which will
ensure that the investments held remain suitable for individual circumstances,
which change over time.
This article is for information only and before undertaking
any specific action, please seek independent financial advice.