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Norwich Union W-P Inflation protected guarantee S4

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Hi all

My mother has just invested in this policy. She's newly retired, invested £40k, with a sizeable remainder left, so fortunately she is in a position to leave that sum untouched for 5 years - which I understand is the minimum to period required to escape any penalty clause.

After signing she has 28 days to cancel the policy ( i.e. 17th February). She's due to meet the bank's financial advisor that day to decide whether to cancel or not.

I've read policy document but its all a bit beyond me. I'm concerned if there is anything to be particularly concerned about and anything she should ask the (non-independent) advisor.

Ultimately what appeals with the policy is the inflation protection guarantee, which in this current climate was a major factor in her investing in it.

Can anyone help.

Thanks in anticpation
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Comments

  • gozomark
    gozomark Posts: 2,069 Forumite
    what inflation index is it protected against ?
  • hi

    i think its the consumer price index
  • jem16
    jem16 Posts: 19,592 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Photogenic
    Hi all

    My mother has just invested in this policy. She's newly retired, invested £40k, with a sizeable remainder left, so fortunately she is in a position to leave that sum untouched for 5 years - which I understand is the minimum to period required to escape any penalty clause.

    The fund itself is a very good one. See here;

    http://forums.moneysavingexpert.com/showthread.html?p=16890615


    After signing she has 28 days to cancel the policy ( i.e. 17th February). She's due to meet the bank's financial advisor that day to decide whether to cancel or not.

    Getting it from a bank would give me more to worry about. She would get far better terms from an IFA.
    i think its the consumer price index

    I believe the retail price index was better.

    However I believe the biggest concern is the justification for using an Investment Bond over ISAs and Unit Trusts. Were either of these mentioned and why was the Investment Bond wrapper chosen?
  • Thanks Jem 16

    Sorry to sound dim, but in what way do you mean getting better terms from an IFA, I assumed the product was fixed, and the only difference between going to IFA or the bank would be comission. Wouldnt the costs of the IFA swallow any bonus gained.

    There was no mention of ISAs and Unit Trusts, this policy was pushed because of the inflation guarantee as my mum is very keen to minimise risks. With ISAs and Unit Trusts they dont have the inflation guarantee so I assumed that at the end of the 5yr period there was a greater likelihood that the sum under this policy would be relatively better eg if the capital sum reduces in value then the interest /bonus % would also reduce.
  • hi again

    would it be better for her to go direct through norwich union?
  • jem16
    jem16 Posts: 19,592 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Photogenic
    Thanks Jem 16

    Sorry to sound dim, but in what way do you mean getting better terms from an IFA, I assumed the product was fixed, and the only difference between going to IFA or the bank would be comission. Wouldnt the costs of the IFA swallow any bonus gained.

    Each network of IFAs can receive different terms of initial allocation, basically designed to offset the high charges in the first 5 years. Basically these products usually have a commission level of around 7/8%. Normally the bank would take the whole commission. An IFA would probably take less commission.
    There was no mention of ISAs and Unit Trusts, this policy was pushed because of the inflation guarantee as my mum is very keen to minimise risks. With ISAs and Unit Trusts they dont have the inflation guarantee so I assumed that at the end of the 5yr period there was a greater likelihood that the sum under this policy would be relatively better eg if the capital sum reduces in value then the interest /bonus % would also reduce.

    The problem is that with the investment bond tax is automtically paid within the bond wrapper. This may be avoided with ISAs and Unit Trusts depending on your mother's circumstances.

    It may still be the best choice given your mother's wish to reduce risk but it would worry me that the product is being pushed because of the high commission it generates rtaher than because it is the most suitable product. Dunstonh would be able to give you a btter answer on this.

    She would be far better seeing an IFA rather than a tied "adviser" at the bank.

    would it be better for her to go direct through norwich union?

    Not really as NU would just keep the commission themselves.
  • I think it is wise for her to see an IFA.

    Many, many, thanks
  • dunstonh
    dunstonh Posts: 119,662 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Combo Breaker
    and the only difference between going to IFA or the bank would be comission. Wouldnt the costs of the IFA swallow any bonus gained.

    Banks take maximum commission (and on upfront basis as well). An IFA doing the same would cost identical. Although IFAs often get more commission for exactly the same cost ot the client. However, if you agree a fee with the IFA, they can use the commission to offset it or the product has no commission and that goes into the plan.

    For example, look at the initial allocation rate. Your mum got 100% or 101%. How about 106% from an IFA.

    IFAs negotiate their own terms with firms. Nearly all get better than the banks. For example, If Lloyds (who own Scot Widows) do an investment bond and an IFA does the same bond and both take maximum commission, the IFA will get paid more. Yet the charges to the customer/client are the same. Clerical Medical (owned by Halifax) give an annual management charge discount to IFAs. (although not all as I recently saw when coming up against another). With banks you are always paying the maximum commission basis. With an IFA you can negotiate this. The more money you invest, the better terms you can get.

    Big problem though. NU have just reduced the terms on new business for this product. They have dropped the commission and allocation rate to help cover the cost of the guarantees.

    That said, 40k in an investment bond doesnt sound like good advice. It sounds more product driven (which you expect from a bank).
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • thanks for that advice, my mother stuck with the product, lets hope it all works well in the end, thanks for the advice nevertheless
  • vogelrok
    vogelrok Posts: 5 Forumite
    just hope your mum never needs to draw the money out. after 1 yr im almost £2000 down if i take it out now i invested £10000 in the year i have made £140 interest on my investment. hardly worth it if you ask me.

    dont help that the RPI is at -1.6% right now.

    i hope your mum has better luck with this product. i do feel it was pushed onto me at a time when the market was falling and the banks knew this. so really think it was mis-sold to me.
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