Legal and General - exit penalties

Sapphire

I wondered whether anyone could explain the report in today's Guardian about reductions in pension payments.

The report seems to say that investors with with-profit pensions would now be getting less than anticipated once they come to retire.

What is this about? Yet another scam to fleece people?

Any help appreciated.

Debt_Free_Chick

No it's not a scam. With-profits simply smooths out the ups and down of investment returns. But in exceptional situations, the losses have to be passed on to those taking their money out, to protect those who are leaving their money in.

Remember that terminal bonuses are often paid, when investment returns are exceptionally good, so it doesn't seem too unreasonable for an exit penalty to apply when returns are exceptionally bad.

Penalties don't normally apply unless your taking an early exit. If you don't like the penalty, then simply sit tight until it's removed and exit then.

dunstonh

report in today's Guardian

Oh dear. Thats a bad start. Lets ignore facts and reasons article....

The report seems to say that investors with with-profit pensions would now be getting less than anticipated once they come to retire.

No-one can say that and its not just with profits but every fund that contains equities. Future returns are unknown and we dont know how long it will take the market to correct and recover to earlier levels. If its relatively short (within 5 years) then its fine. If its 10-20 years then it will be harder. However, unless you retire and commence benefits then you must remember that your contributions now are buying investments cheaper. So, the longer you have the more you stand to actually gain from this down turn.

Yet another scam to fleece people?

If your interpretation of the article is correct then its a badly written article rather than a factually correct one.

With profits tend to work similar to a balanced managed or cautios managed fund behind the scene with some smoothing to remove the highs and lows. However, on major downturns they cannot keep paying out the same amount. If the underlying assets have dropped 20% then you cannot smooth that out. They have to apply an MVR or reduce terminal bonuses.

You will probably find that active with profits have performed better than FTSE trackers over the last 10 years. It's easy to slag off with profits but you need to put it in context.

Sapphire

dunstonh wrote: »

Oh dear. Thats a bad start. Lets ignore facts and reasons article....



No-one can say that and its not just with profits but every fund that contains equities. Future returns are unknown and we dont know how long it will take the market to correct and recover to earlier levels. If its relatively short (within 5 years) then its fine. If its 10-20 years then it will be harder. However, unless you retire and commence benefits then you must remember that your contributions now are buying investments cheaper. So, the longer you have the more you stand to actually gain from this down turn.



If your interpretation of the article is correct then its a badly written article rather than a factually correct one.

With profits tend to work similar to a balanced managed or cautios managed fund behind the scene with some smoothing to remove the highs and lows. However, on major downturns they cannot keep paying out the same amount. If the underlying assets have dropped 20% then you cannot smooth that out. They have to apply an MVR or reduce terminal bonuses.

You will probably find that active with profits have performed better than FTSE trackers over the last 10 years. It's easy to slag off with profits but you need to put it in context.

Thank you for your reponse. The Guardian article was unclear (to me), hence my query. Given recent events in the economy, I am now suspicious of the actions of any financial organizations (as well as gas and electricity companies, incidentally).

My with-profits pension with L&G matures in a couple of years. According to what you say, it should not be affected too much, which is a relief.

dunstonh

If you were retiring now you would have seen your terminal bonus reduce but your annual bonus amounts unchanged. Any MVR brought in would not apply to you. So, you havent been as hit as hard as someone who was say in a FTSE tracker fund. However, you would still be hit. With a couple of years left, you are probably just on the wrong side of seeing much benefit of improvement (crystal ball job that one).

iamesbo

Yes they sould really be called with 'profits and losses' but the marketing men didn't like that so they shortened it to 'with-profits'.
The financial service watch dog turned a blind eye, as they were out playing golf with people from the industry and receiving other incentives. The advertising standards people also turnnd a blind eye as the were up to their eyeballs in industry bribes they could not really see what was going on.

iamesbo

Yes 'with-profits' sounds a lot better than 'you could lose all your monry in this'

dunstonh

I'm not sure what your problem is. Most with profits funds are classed as medium risk and have no guarantee on capital (the fund itself that is, the contract may).

iamesbo

dunstonh wrote: »

I'm not sure what your problem is. Most with profits funds are classed as medium risk and have no guarantee on capital (the fund itself that is, the contract may).

OK so we have established he capital is not guarantee.
That just leaves the 'profits' which I quote because that means 'profits and lossses'
So....if it makes no profits you get nothing as whatsoever, the entire lot is gone, initial capital and 'profits'.

So you could be left with absolutely nothing, is that correct Dunstonh?

I would like answer in the form of:-

a) No you cannot lose all you money.
or
b) Yes you can lose all your money.

So which is it? A or B.

It's a one letter answer, so lets have it. A or B?

I bet he does not answer that!! (and I know why!!).

dunstonh

So you could be left with absolutely nothing, is that correct Dunstonh?

No. The unit price on a unitised with profits fund cannot go down. The terminal bonus can go up and down but cannot go below zero. A market value reduction can apply which can hit surrenders and transfers (but not deaths and maturities).

So, its more a degree of capital security not guarantee. A is you closest answer but your A or B response is too simplistic.

Debt_Free_Chick

iamesbo wrote: »

OK so we have established he capital is not guarantee.

Although there usually is a "guarantee" of some description at the "maturity date".