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With profits bonds

tigermoth123
tigermoth123 Posts: 5 Forumite
in Auto-enrolment
Hi, my parents are well into their retirement and have a reasonably large amount of money invested in some with profits bond policies with L&G and Sterling. They've had them for around 10 years and the performance has not been great. In fact the Sterling ones have gone down in value. To add to the problems they have been taking income at a rate of 5% pa (far more than the investments have been making) of the initial investment (on a monthly basis). The result has been that the value of these instruments have declining fairly rapidly.

My parents are seeing an IFA next week (the one who recommended these instruments in the first place). I would like to try and help them by fore-arming them with suggestions for alternate instruments. What they want at their age is something that is not too risky but will show enough growth to provide a modest income (to supplement their pensions etc).

Can anyone suggest reasonable alternatives to with profits bonds? What other investments typically sit in this same class?

Thanks....

Comments

  • Linton
    Linton Posts: 17,125 Forumite
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    Prudential WP bonds have been better than most over a long time period. My long term return with them over about 15 years is just under 5.5% but it will be less than that at the moment. I dont think they will be able to moderately safely draw down 5% unless they go for riskier investments.

    How much money do they have? With say £20K there is not a lot you can do except make best use of the interest paying current accounts whilst they are around. With £100K it may be worthwhile to look at a portfolio of growth, wealth preservation and income funds and vary ones drawdown with economic conditions.

    If they are in their 80's and the sum is reasonably large an annuity would provide a better guaranteed steady income. It wont leave any money for the benficiaries but that may be a secondary concern.
  • dunstonh
    dunstonh Posts: 116,301 Forumite
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    In fact the Sterling ones have gone down in value. To add to the problems they have been taking income at a rate of 5% pa (far more than the investments have been making)

    That 5% is net. So that is 6.25% gross. In the last 10 years we have had a major generational crash. So, a capital loss is not unexpected. Sterling is not too bad as it has a wide fund range. Much the same with a few versions of the L&G bond.
    Can anyone suggest reasonable alternatives to with profits bonds?

    Are these with profits bonds or unit linked bonds (which may have a unitised with profits fund as one of the many funds available)?

    The problem is really the draw rate.
    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.
  • tigermoth123
    tigermoth123 Posts: 5 Forumite
    Hi Linton,

    thanks for the response. My mum is in her late 70s and my dad in his 80s. They have around £120K invested across 4 funds I think. I don't believe that they actually need to take out 5% as they have other forms of income (pensions etc). Whatever they go with, they are likely to drop the amount of income they take (say to 3%). Currently it worries my parents that the amount is diminishing - Was approx £160k ten years ago.
  • tigermoth123
    tigermoth123 Posts: 5 Forumite
    Hi Dunstonh,
    That 5% is net. So that is 6.25% gross. In the last 10 years we have had a major generational crash. So, a capital loss is not unexpected. Sterling is not too bad as it has a wide fund range. Much the same with a few versions of the L&G bond.

    Sorry to be dumb ( :-) ) - when you say the 5% would be net, meaning 6.25% gross, where does the difference come from? Is that fund fees?

    I guess with the Sterling funds I just felt that the particular ones that had selected seemed to have steadily dropped in value (whereas the L& ones have increased by 40% over 10 years). But I didn't mean to imply that Sterling are any worse / better than L&G. Just that perhaps my parents should switch from those particular funds. Actually, when I looked the specific Sterling funds up that my parents hold, I found that they are closed for further investment.
    Are these with profits bonds or unit linked bonds (which may have a unitised with profits fund as one of the many funds available)?

    With respect to whether they are "with profits" bonds or "unit linked" bonds, I believe that they are the former. Where should I look to be sure? Do you think there is an issue with staying with "with profit" bonds? Or are there other similar but better performing investments?
    The problem is really the draw rate.

    Agreed. They are definitely going to reduce this.
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