Clerical Medical with profits bond

derrick

Hi, any advice on the following would be gratefully appreciated.

Took out a “Sovereign with profits bond” with Clerical Medical in June 1999, initial investment, £15764. have just received annual statement and the fund value is only £19429. with an AVR of 7%, (there is an AVR free date at 10th anniversary, June 2009), therefore if I cancelled now I would only receive £18069.

Just to give an insight in to the deplorable results of this investment,

Initial investment £15764. June 1999, yearly values:-

June 2000 £16920, (this was with a guaranteed 7.5% for the first year)
June 2001 £17638
June 2002 £18298
June 2003 £18764
June 2004 £19231
June 2005 £19279
June 2006 £19429
As you can see it is making practically nothing,(£3665 in 7 years) I calculate about 3.3 % per annum flat rate on the fund value, (without including the AVR), I could have done better in a bank/ building society. There has been an AVR applied most years, in 2004 it was 17%, and I am told it will be revised again on 1st August 2006.

I can take a “regular withdrawal” of 7.5% of the initial investment, meaning an annual withdrawal of £1182 without any AVR application, on the amount withdrawn.

Is there anything I can do short of take the “regular withdrawals” for the next 3 years then withdraw the lot on the AVR free encashment date June 2009 ?

Thank for any “advice”

dunstonh

CM usually have a range of alternative funds and you should be able to switch at least 7.5% out each year into the alternative funds without having an MVR apply. Possibly more as the MVR may not apply on a percentage that isnt linked to the withdrawal allowance. However, it shouldnt be less.

As you can see it is making practically nothing,(£3665 in 7 years) I calculate about 3.3 % per annum flat rate on the fund value, (without including the AVR), I could have done better in a bank/ building society. There has been an AVR applied most years, in 2004 it was 17%, and I am told it will be revised again on 1st August 2006.

Its about inline with a bank account as 3.3% rate of return is net meaning you would require 4.125% gross on a bank account. However, you shouldnt compare to bank account as this is an equity investment and you invested at a bad time into quite a poor investment fund. The investment also has some capital guarantee and where there are guarantees, you usually end up paying for them in a lower return or increased charges.

CM usually announce half year bonus rates and MVR changes in August so any decision should not take place until then. It's quite possible you will see the MVR drop. At that point, a fund switch fully into an alternative fund spread could be the better option or a switch to a more modern investment with lower charges (dont assume on charges, some of these older plans can have some funds with decent charging which is lower. However, some can be a lot more as well).

derrick

Thanks for the reply,re the switching, I see what you mean, but as I said in my OP I can move 7.5% as a "regular withdrawal" and I think I would do that as against switching within CM as I do not think they have done me any service.

Maybe it should not be compared to a bank acc but over 7 the years bank/BS have done around 5% gross,(at least that is what I have been getting) so personally I would have got a better return, certainly the last 12 months at 5% would have given me £963 on the fund value at June 2005 as against the derisory amount of £150, and no AVR to bother about.
If I remember correctly the annual management charges on this fund are about 1%

I have no confidence in any of these funds having lost out in nearly all of my investments over the years and whilst they may not set the world on fire I think my money will be staying in Building societies where I can at least see what I am receiving if not the rate I may get on the stock market, I have well in excess of six figures but will not risk it any more when the fund managers do not take any risks as it is not their money they are playing with.
Example,(and using poetic licence with the figures), I invest £100,000 with a management charge of 5%, over a year if nothing moves the manager makes £5000, if the fund increases by 50% he makes £7500,however if the fund drops by 50% he makes £2500 and I lose £50000, where is the justice in that?
Like I said I have used basic maths, but these things happen, i.e if the fund value falls the manager still gets paid a percentage, nobody and I mean nobody should be paid on a percentage of a valuation of a sum of money, be it this type of investment,estate agents, (it does not cost any more to sell a £150,000 house than a £100,000 house but they get 50% more for doing it) or whatever, and the poor client is £s out.

dunstonh

I have no confidence in any of these funds having lost out in nearly all of my investments over the years and whilst they may not set the world on fire I think my money will be staying in Building societies where I can at least see what I am receiving if not the rate I may get on the stock market, I have well in excess of six figures but will not risk it any more when the fund managers do not take any risks as it is not their money they are playing with.

With even a half decent sector allocated cautious spread invested at the worst possible time you would have seen around around 10% p.a. average. It isnt the concept that is wrong. It is where you have it invested currently that is. How, where and why it invests where it does not match what you expect.

I invest £100,000 with a management charge of 5%, over a year if nothing moves the manager makes £5000, if the fund increases by 50% he makes £7500,however if the fund drops by 50% he makes £2500 and I lose £50000, where is the justice in that?

Make the £5000 closer to £500-£1000 and you are closer to the mark.

Like I said I have used basic maths, but these things happen, i.e if the fund value falls the manager still gets paid a percentage, nobody and I mean nobody should be paid on a percentage of a valuation of a sum of money, be it this type of investment,estate agents, (it does not cost any more to sell a £150,000 house than a £100,000 house but they get 50% more for doing it) or whatever, and the poor client is £s out.

Fund managers bonuses are linked to performance and they will see significant differences in positive years compared with negatives.

All that said, this is a medium risk investment that has been crippled with the Govt increasing solvency requirements and changing accountancy standards. You also invested prior to the stockmarket crash which occured before the aforementioned changes. This is why this type of investment is considered mostly obsolete nowadays.

derrick

dunstonh wrote:

Make the £5000 closer to £500-£1000 and you are closer to the mark.

I did say that I was using poetic licence with the figures, therefore my example stands,(use yours if you want,but the point of the line stands)

Let me just give you an example of the inadequacies of paying by percentages:-

I have just transferred a PP from one provider to another with whom I also have a PP, this was done on execution only without advice,(transfer value £18786) I used an IFA who got 5% for what involved a very minimal amount of work,( if I did not use IFA the money would have stayed with the receiving compmany), now the amount to be received was £939. a lot of money, however if the transfer value had been 2x £18786,(£37572) the commission would have been £1878. why? there is no more work but twice the pay. Commission based on % stinks.

I used an IFA,(no advice, because I am reasonably happy with the transferred to company at the moment) for the reason that we came to an agreement on the commission,I received £x and he received £y, it was on a 1/3 2/3 basis in my favour, this will not be used to provide enhanced value, but in the form of a cheque paid to me by the IFA,(tomorrow).

dunstonh

Commission based on % stinks.

Well dont do commission terms and go fee basis instead. That is your choice.

I used an IFA,(no advice, because I am reasonably happy with the transferred to company at the moment) for the reason that we came to an agreement on the commission,I received £x and he received £y, it was on a 1/3 2/3 basis in my favour, this will not be used to provide enhanced value, but in the form of a cheque paid to me by the IFA,(tomorrow).

Quite a foolish agreement by the IFA in question. Most pension providers have a 3-5 year clawback on single premium/transfers. If you move that to another provider in that time, the IFA would get a clawback. The most sensible way for you and the IFA would have been to take a reduced commission to pay him and you get lower annual management charges on your plan.

Tiggs_2

derrick wrote:

Commission based on % stinks.

You may feel as such (and if so you can ask for a fee instead) but it is, and always will be, the way of the world that the more expensive an item that is sold, and the more profit it generates for the provider of that item....the more the person selling it will get paid.

Doesnt matter if its bread, cars, planes, beans or investments.......that just sales.

The resons why this is not liked in finance are many hence the chance to deal by fee.

EdInvestor

derrick wrote:

I can take a “regular withdrawal” of 7.5% of the initial investment, meaning an annual withdrawal of £1182 without any AVR application, on the amount withdrawn.
Is there anything I can do short of take the “regular withdrawals” for the next 3 years then withdraw the lot on the AVR free encashment date June 2009 ?

If you haven't taken any withdrawals so far, check whether you can take the annual withdrawals going back to the beginning as an accumulated lump sum now.

derrick

dunstonh wrote:

Quite a foolish agreement by the IFA in question. Most pension providers have a 3-5 year clawback on single premium/transfers. If you move that to another provider in that time, the IFA would get a clawback. The most sensible way for you and the IFA would have been to take a reduced commission to pay him and you get lower annual management charges on your plan.

With the provider concerned there will be no clawback, once the commission is paid that is the end of it, I could transfer the lot the day after and the commission will not be clawed back, I have got assurance about this and believe me I have gone into it with them, also the IFA is of the same opinion.

EdInvestor wrote:

If you haven't taken any withdrawals so far, check whether you can take the annual withdrawals going back to the beginning as an accumulated lump sum now.

I will ask about that, thanks

derrick

EdInvestor wrote:

If you haven't taken any withdrawals so far, check whether you can take the annual withdrawals going back to the beginning as an accumulated lump sum now.

Have just made the call and they tell me because it is a with profits bond and the start falls between certain dates it has not got an accumalitive value.

Tiggs_2

derrick wrote:

Have just made the call and they tell me because it is a with profits bond and the start falls between certain dates it has not got an accumalitive value.

sounds right, the % that relates to tax implications can be rolled up but the % allowance that links to the provider penalties is not normally "rollable".