Norwich Union With Profit Bond Advice

col553

I am looking for advice on behalf of a relative. They have invested 10K with N/U and are not sure if it is for a fixed term or not, their yearly statement arrived last week informing them of there fund.
It says that they invested 10k in Jan 2001, and states the bond values @ 18 Jan 2006

Total unit value £ 11,760.46
Value on death £ 11,878.06
Cash-in-value £ 11,760.46


Previous Cash-in-value Jan/05 £ 9,750.14


My question is should she cash it in or leave it or move it else where.
Thanks.

ReportInvestor

Well there is no MVR to pay if it's in the WP fund - so that is good (there was last year, which may explain the rapid improvement in the cash in value) . It's not a fixed term investment, but there were early exit charges in the first five years.

Future annual charges are 1% or 1.35% pa depending on which NU WP Bond option it is. So OKish.

Investment mix gives potential for a decent future return ie
UK equities 41%
Property 18%
Overseas equities 13%
This mix also suggests that the fund is reasonably strong
And Norwich Union WP funds grew by 17.7% in 2005.

So there's no obvious reason to move it elsewhere as a similar new investment would immediately be fenced in by early exit charges etc.

What was their thinking? You haven't said anything about their aims or worries.

See here to compare NU and other WP Bonds to see how lucky they are by comparison

dunstonh

I have a handful of clients on the NU Portfolio Bond in the WP side and they are averaging over 6% a year growth on top of the 5%p.a they are taking out. A lot of it has to do with timing.

In this case, 2001 wasnt the best of years to invest for short term. However, NU is more or less through the worst of it for 2001 cases and you should see an improvement over the coming years.

That bond currently has 113 investment funds available on it, some of which are lower risk than the with profits fund. The bond itself is one of the lowest charged out there (assuming full cost basis and no discounting). So the actual container for the investment is good. If the funds are of concern, then NU allow a switch to alternative funds at no cost.

col553

Relative is elderly, has no short term plans to use fund. the statement said it was a Portfolio Bond xxxxxxxUT/01 to 040 Units With prifits units held are 6570.090 unit price 1. 7900 Value £ 11,760.46. It also said a final bonus may be added, how does this work

Would it be ok just to leave where it is or in your opinions change it in any way.

Thanks again.

ReportInvestor

I'd leave it. There are many worse places to be, the money is currently available if (s)he needs it and there is potential for modest growth.

whiteflag_3

ReportInvestor wrote:

I'd leave it. There are many worse places to be, the money is currently available if (s)he needs it and there is potential for modest growth.

Why would you leave it where there is a potential for an MVA to applied again in the future ?

If you believe the underlying asset mix of the NU wp fund to be right for the investor(who incidentally you know absolutley nothing about) why arent you recommending a fund switch to funds matching the underlying WP fund?

The investors then have exactly the same investment risk profiles without the spectre of MVAs hanging over them in the future!

BTW dont mention the benefits of smoothing as the last few years have shown that they do not work when markets fall

dunstonh

All we can say is that the actual bond itself is good. The range of 113 funds from NU and external managers is very good for bond and the selection of the funds is a decision you need to make based on the individual attitude to investment risk (which we do not know).

I would add to whiteflag's post (more for the benefit of others who may read this and have the same bond) that the situation would be slightly different if they had gone into the with profits fund in 2003. At that point the markets had already dropped significantly and it is unlikely (as much as the crystal ball allows us to see ) that the markets would drop below that level again. Also, the 2003-4 versions had a guarantee of capital on 5th and 10th anniversary at no cost. Probably worthless guarantees in the long run as the chances of suffering a potential MVR at those points is highly unlikely. However, some may appreciate that guarantee just for peace of mind. A 2001 version with no MVR currently being charged would make sense to perhaps switch to more appropriate funds within the range.

EdInvestor

Investment bonds. Aaaargh!!

Check out their horrendous charges:

https://www.fsa.gov.uk/tables

dunstonh

What a complete load of tosh from Ed. Post a scaremonger comment with no factual information to back it up.

An investment bond can invest in the same unit trust funds and have a lower reduction in yield than that unit trust. I have done three investment bonds this month (2 with NU) and the reduction in yield has been between 1.1% and 1.3% p.a. The same portfolios on the unit trust would have been closer to 2% p.a.

Ed assumes that because some bonds can be very expensive that they all are. A bit like assuming that because you can spend £500,000 a motor car, that they all must cost that much. Or assuming that because Harrods charge x amount for something, that everyone else charges that amount as well.

Please totally disregard Eds comments as they are incorrect for the NU portfolio bond.

ReportInvestor

I was assuming that the original investment was suitable, wf. The OP's relative doesn't need it for income, as none has been taken & the OP later confirmed that this was the situation. We are looking at a fairly balanced fund aiming at some growth. If income needs to be taken in future it can be.

I'm no fan of with profits, but the NU WP fund is better than most WP funds.

If you split the £10K into four different NU funds to match the WP fund asset mix, how would that work out on the charge front in future?

col553

So i guess your advice to my relative is to leave where it is. How will we know when to start thinking of looking elsewhere. Or where else is as good or better place to put 10k. Thanks for advice and opinions. :beer: