With Profit Bond, disappointing return

missile

Hi,

I invested £100,000 in a NU with profit bond on 07th January 2002.

2010 Statement
Total Bond Value £81,943.33
Cash-in value £78,810.20
Total payments out £60,000

2009 Statement
Total Bond Value £86,943.33
Cash-in value £80,606.01
Total payments out £52,500

I calculate a return on my investment to be 1.94% for this year. Ignoring the special reattribution payment £2343.99.

I would very much appreciate your advice on whether I should hold or cash-in this bond. FYI the current MVR is £3,133.13. Please note this bond is guaranteed to have nill MVR at 10 year anniversary.

dunstonh

(check your 2009 statement figures as your cash out and surrender values are the same - looks like payments out figure is wrong)

So, you paid in £100k and its an value plus withdrawals is £141943. I make that an equivalent rate of 4.48% net.

Considering the scale of the market drops in property, fixed interest and equities last year and the fact that with profits tends to lag thats not too bad. Aviva last adjusted MVRs in October so we are due another update in the next few months. Terminal bonuses are going back up again as well.

You also have to remember that you were still in the period of downturn after the dot.com/US accountancy scandals crash.

A good guide to comparison is to look at the Aviva balanced managed fund as that is very similar in underlying assets and trends similar returns over the long term. If you invested in that on 7/1/02 then by March 2003 you would have been down 23% (ignoring withdrawals). Then it had the 4 good years that followed to October 2007. Then came the more recent decline and by March 09 the underlying assets were worth less than you paid in again by around 6%. Again ignoring the withdrawals. Since then there has been a sharp recovery but over the whole period ignoring withdrawals, you would be up 25.14%.

Factor in the £41943 (difference between investment amount and withdrawals minus difference to put you back on 100k), and you really ought to be valued at less.

I just put the following data into financial express analytics and used 7/2/02 with £100k going into the Aviva balanced managed fund s2 with 7.5% pa. withdrawals (to match yours). The value of that at close last night would be £52,800.

So, I dont think its as bad as you think it is.

And for reference, if you had done the same into Aviva Invesco Perp Income S4 over the same period, with same withdrawals that would now be worth £81659.32

missile

(check your 2009 statement figures as your cash out and surrender values are the same - looks like payments out figure is wrong)

Sorry, I have edited post#1

So, you paid in £100k and its an value plus withdrawals is £141943. I make that an equivalent rate of 4.48% net.

Yes agreed 4.48% over 8 years, but only 1.94% over the last year.

I do appreciate one should regard this as a long term investment. I don't regard this as a "bad investment", overall I am satisfied with the return. My objective for this investment was a modest return, better than inflation. I don't need the cash, but I would appreciate your thoughts on whether it is wise to hold or cash it in to invest elsewhere.

dunstonh

I do appreciate one should regard this as a long term investment. I don't regard this as a "bad investment", overall I am satisfied with the return. My objective for this investment was a modest return, better than inflation. I don't need the cash, but I would appreciate your thoughts on whether it is wise to hold or cash it in to invest elsewhere.

I would hold it to the MVR exit date. If things at least remain stable this year you would expect the terminal bonuses to go up and the MVR to reduce.

I have some of these plans on my books and they are all beating an average of 5% net per annum. Your biggest problem is that the 7.5% net per annum withdrawals is a drag on the value. As I showed, had you picked unit linked alternatives, you would have still suffered a similar or worse fate. even a good fund like Inv Perp income.

Without using the benefit of hindsight, tell me an investment fund alternative you may have used 8 years ago in its place and I will put it in the software and see where it comes out.

missile

I take your point, I could have done a lot worse.

In 2002 I took out two £100,000 With Profit Bonds, one with NU and one with LV. I cashed the LV bond in 2007, but I would be interested if you could advise how it would have performed and what the value might have been today?

I would hold it to the MVR exit date

Many thanks

dunstonh

but I would be interested if you could advise how it would have performed and what the value might have been today?

Cant tell you with the With Profits funds as very few publish data that can be analysed and compared. Its one of the big negatives with that type of fund. Unit linked funds are easier for software to compare as they have a daily price and charges are explicit.

However, if i was to guess, I would reckon Aviva was better than LV (and Pru WP was better than Aviva if you had that one).

margo300

I am in a similar situation - fortunately my Aviva bond reaches its 10th anniversary later this year and will be MVR free for a short period. I have my statements going back to 2000 - the only other time the bond has ever been MVR free was in 2008 - at which time it briefly also held entitlement to a "final bonus" - that soon disappeared to zero again.

I was interested to find out what happens in respect of MVRs for special bonuses, and discovered that currently:

Special bonus 1 carries a 9.6% MVR, whereas both special bonus 2 and special bonus 3 have 0% MVR. Of course, this, I am told, could change any time!!

I also found out by chance recently that it is now possible to register with Aviva on line to view policy details. It only takes a few minutes to do so, and you are then free of the laborious business of obtaining the information by phone from the so long-winded process of the call centre.
I am pleased to be able to view my policy details within seconds whenever I wish.

EdInvestor

dunstonh wrote: »

Cant tell you with the With Profits funds as very few publish data that can be analysed and compared.

Money Management magazine publishes an authoritative survey of WP products every quarter, which was often picked up in the financial press in the past when WP products were more popular..

http://www.ftbusiness.com/publications/moneymanagement.shtml

missile

However, if i was to guess, I would reckon Aviva was better than LV

It was an easy decision in 2007. For your info:

NU 2007 Statement
Total Bond Value £100,170.92
Cash-in value £100,170.92
Total payments out £45,000
Return over five years = 6.21%

LV 2007 Statement
Total Bond Value £94,230.57
Cash-in value £94230.57
Total payments out £25,000
Return over five years = 3.58%

missile

I have calculated the equivalent AER net of basic rate tax to be:

07th January 2002 through
2003 > 10.94%
2004 > 2.39%
2005 > 1.53%
2006 > 8.56%
2007 > 6.81%
2008 > 6.90%
2009 > -4.30%
2010 > 1.94%

These returns include the special bonus payments. Including the reattribution increases AER 2009 > 2010 to 3.59% and return over the eight years to 4.69%

markaylott

I took out a 'with profits bond' in 2000 on the advice of a so called financial adviser , with RSA ( now Phoenix) , and invested £50,000 in it. Up until early 2004 this was returning a small amount monthly , but that changed drastically after that. Nobody at RSA could give me any explanation why this was , just that the economic climate was not good , and then they slapped a huge MVR on it meaning that it was not worth cashing in . However , the bond had a guarantee on it that at its 10 year anniversary you could cash it in without penalty (which i hastily did this month ), but i have worked out that over the last 5 years this has returned just 0.5% per annum. Even though the economic climate has not been good , this does'nt even cover inflation rate and I am just putting these figures on forums like this to let other propective investors how poorly this performed. I had other similar bonds with other companies and they did not perform like this at all .
Beware of RSA (now pheonix )