Vanishing Terminal Bonus

dgbshifnal

I had expected a severely reduced terminal bonus when my Clerical Medical Single Premium Pension plan (started in 1991), matured in Nov 2008.
Clerical Medical just sent me notification of a lump sum with no detail of how it had been computed.
Having asked them the specific question, they then came back that the terminal bonus was £NIL.
I have not seen anywhere that they made any announcement of not making any payment of terminal bonus. Do these rates get published anywhere?

Robert_Sterling_3

They would be good PR

dunstonh

They dont have a specific terminal bonus rate that applies to everyone. Each plan is treated on its own contribution history.

The CM single premium unitised WP fund (they have different versions but this should be the one that was used in 1991) has been fairly consistent on regular bonuses since 1991. Unlike other funds where the regular bonus has fallen to virtually nothing and the providers use the terminal bonus to reflect performance. This fund has never been one for much of a terminal bonus. Its been consistent at around 4% p.a. year in year out. From January 1991 it should have returned around 205.87%.

dgbshifnal

Thanks Dunstonh, that is interesting. In fact the terms of the plan are that it should return a minimum of 4% per annum, with a set amount being added to the value on a daily basis.
Although I expected a big reduction owing to current circumstances, in the illustration they gave in September, the terminal bonus was £19K, so I did expect something.

EdInvestor

Most of the WP funds with guaranteed investment returns (GIRs) have lost most of their TBs, and struggle to make more than the guaranteed returns.This is because they are required to invest most of the money in safe, but low return assets like bonds and cash, to back the guarantee.

When the plan started out, the insurers were allowed to ignore the guarantees and punt the money on the stockmarket.Eventually we had Equitable Life and the regulatory rules had to be changed.

There's no such thing as a free lunch.

dgbshifnal

I take the point, it was just that a 100% reduction from illustration in 2 months seemed a bit excessive!

dunstonh

When you say 100% reduction you need to put that in context to the actual value. If you look at the CM fund performance compared to others, you will see its way above the sector average and whilst others have been reducing their bonus rates over the last 18 months (mostly following the large drops in October) CM have kept the annual bonus steady (as they have to). So, you have to think of the two bonuses as being linked