with profits bond

dunstonh

Better to avoid this wrapper then.[And I haven't even mentioned the charges.......:( ]

Can you explain why you believe you should avoid an offshore wrapper? Can you also explain why you see no benefit in gross roll up?

I also suggest you read up on offshore bonds more as you are incorrect.

moneytroll

Ok, here are some numbers:

- Policy taken out in two lots: 20k in April 2001 and another 15k November 2001 ('great' timing :mad: )

- current valuation: 38.6k (:eek: )

- 4% MVA applies for the 20k but not for the 15k (have a feeling, if there are no disasters, they will remove the 4% soon, though this is just a feeling. When I called some months ago, I remember the MVA was more in the region of 15%!)

- no exit penalties after 5 years from start (so have to wait few more months till November 2006 for the 2nd lot to be set free of exit charges)

- 2013 is the year when the MVA is guaranteed to be removed

- I can take out 10% MVA-free from the 15k

- no 'exit bonuses' payable at the moment (how do they decide when to apply these?)

- investment spread: 37% UK bonds, 30% UK shares, 8% International shares, 21% property 3.6% cash (doesn't look like a bad or particularly risky spread. So why such miserable growth over the years??)

- tax situation is, i suppose (judging from previous posts): tax will be payable on the gains according to my rate when the gains come onshore.

thanks for your help guys

dunstonh

- investment spread: 37% UK bonds, 30% UK shares, 8% International shares, 21% property 3.6% cash (doesn't look like a bad or particularly risky spread. So why such miserable growth over the years??)

Thats how it is now. You invested in 2001 at the start of the stockmarket crash and the equity spread would have been closer to 60%. The switch to lower risk asset classes would have occured after the drop so the fund is in a negative position to what it would have been.

- no 'exit bonuses' payable at the moment (how do they decide when to apply these?)

Only charged in the first 5 years. After 5 years, only the MVR can apply.

If fund switching within the bond is available to you, then it would probably be worth taking a 4% hit on the MVR and using unit linked funds to make up the asset spread you want. It would certainly offer greater potential. Risk of that though is you could do it and then 2 weeks later they could remove the 4% MVR. Equally, the MVR could stay on there for years. So its a judgement call that only hindsight can tell what is best.

moneytroll

"Thats how it is now. You invested in 2001 at the start of the stockmarket crash and the equity spread would have been closer to 60%. The switch to lower risk asset classes would have occured after the drop so the fund is in a negative position to what it would have been."

Not sure if this is right. At the time, I clearly asked for a low-risk option so there couldnt have been a large percentage in equities. Dunno how to check though.

"If fund switching within the bond is available to you, then it would probably be worth taking a 4% hit on the MVR and using unit linked funds to make up the asset spread you want."

I can have upto 12 fund-switches per year free of charge.

Quote:
- no 'exit bonuses' payable at the moment (how do they decide when to apply these?)


"Only charged in the first 5 years. After 5 years, only the MVR can apply."

Yes, this is the exit penalties. I meant "Terminal Bonus". This maybe added at the time when units are encashed. I dont think, however, that this will ever be applicable. (I wonder if they would pay the "Terminal Bonus" if i stuck with them till 2013.

I can't quite locate the TER for this product in the documentation. Do you possibly know what a typical TER would be on these bonds (mine was sold through an Independent FA which was recommended by NatWest...Not as independent as it could have been, but i didn't know better at the time..)

moneytroll

PS: The charges don't seem horrendous. All I can work out from documentation is that there's an 1% AMC and an establishment charge (whats that for?) of 0.12% per month for the first 5 years...Surrender charges will apply for the 1st five years (9%!)
But maybe there are more charges still somewhere?

I would like to get an idea wether I should stick with this product (and vary the funds within it from time to time) or switch to a different product altogether. if it is an unnecessarily expensive product then I should use a different investment vehicle. But i can't tell from the terribly unclear layout of the way the charges are presented!

EdInvestor

Try this link for charges:

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

Look under 'investement bonds".

It will give you an idea at least.

Not sure if this is right. At the time, I clearly asked for a low-risk option so there couldnt have been a large percentage in equities. Dunno how to check though.

This is a With profits bond.The composition of most WP funds has changed dramatically over the past few years.

Which insurance company is this with?

moneytroll

That's strange: I found another page illustrating charges and it says "putting it another way, this would have the same effect as bringing the investment growth down from 7% to 5.4%". Does this imply that the TER is 1.6%? This is not so bad.
However, when I check the "total actual deductions to date" column it shows that for year 1, the deduction is £1.890 on the 20k investment. Which is a wopping 9.45%! I don't understand...

moneytroll

It's with Clerical Medical, recommended by an IFA, recommended by Natwest...

"This is a With profits bond.The composition of most WP funds has changed dramatically over the past few years."

Are you saying that they choose the composition of the fund as they feel appropriate and i wouldn't have any influence over its composition? so why does it mention the 12 free fund switches per year? i have difficulties understanding this product...

dunstonh

That's strange: I found another page illustrating charges and it says "putting it another way, this would have the same effect as bringing the investment growth down from 7% to 5.4%". Does this imply that the TER is 1.6%? This is not so bad.

Its an average of the charges over the 10 year period. So the first 5 years establishment charge would be in there averaged. The charges are in line with what you would expect.

However, when I check the "total actual deductions to date" column it shows that for year 1, the deduction is £1.890 on the 20k investment. Which is a wopping 9.45%! I don't understand...

The deductions column assumes surrender in those years. In years 1-5 that would include the surrender penalty. Hence the 9.45%. Nothing to worry about at all.

The charges you have mentioned so far seem quite reasonable for an offshore bond. Was there an increased initial allocation? My guess is that there was due to the establishment charge.

Everything you have said so far indicates charges are lower than had you invested into unit trusts.

Are you saying that they choose the composition of the fund as they feel appropriate and i wouldn't have any influence over its composition? so why does it mention the 12 free fund switches per year? i have difficulties understanding this product...

With profits is just one fund. Its like a cautious managed fund now and can invest in a range of areas. You have the option to switch to other individual funds and create your own portoflio within the bond.

EdInvestor

moneytroll wrote:

Are you saying that they choose the composition of the fund as they feel appropriate and i wouldn't have any influence over its composition?

Yes.Before the markets started to crash, WP funds were normally - and this would apply to CM - invested around 75% in equities, and the rest in property and bonds/cash. Then Equitable Life collapsed,the markets crashed, and the FSA got nevous that insurers weren't properly reserving for their guarantees.So they made the companies put more WP money in safe assets.

The result is that the typical WP fund investment profile is now 40% equities and property, 40% bonds and cash, a lot different from what it was before.

Ironically in your case, this is probably more or less what you wanted in the first place.But like many people you were put into an investment that was a lot more risky than what you wanted.

Did your IFA mention the MVA penalty to you?

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