Standard Life With(out) Profits

Lorian

Someone still has a small SL low cost with profits policy of 20 years duration with 4 years left to run, not associated with a mortgage. They have held on hoping the terminal bonuses will recover, which they appear not to do.

Are the next 4 years worth of premiums going to be wasted, as the terminal bonuses will completely gone before then?

This is of course, purely hypothetical, only posted to solicit opinion, not advice.

EdInvestor

The answer will become clearer in the next few weeks when they announce their annual bonuses.

Lorian

So is there a gamble to be had by terminating before they announce, If they were to assume it's to be cut again?

EdInvestor

Could be. Is there any terminal bonus left in the policy, if so how much?

Milarky

The really annoying thing is that the people who could answer this question - Standard Life - aren't going tell you. They have been cutting terminal bonses systematically and are yet to announce any increase (they've only managed to hold them level) in the 'annual' bonus rates. But then they stopped raising 'reversionary' bonus rates about 1992 if memory serves - so they could actually raise terminal bonus rates first - on the grounds that these aren't actually 'guaranteed' to stay up. Now moving up terminal bonus rates would be 'nice' but I'm sure you would just settle for them not cutting them any further wouldn't you? This (simplistic) analysis suggests to me that:

they won't raise annual bonus rates this year

they might not cut terminal bonus rates this year

But even that would be an improvement on last year, if it happened, wouldn't it?

Sorry can't be more helpful than that - I surrendered in July as soon as I got my free shares. I understand your frustration but it's your call.

One way to approach this question is the 'bird in the hand' one: They'll give you XXXX squid today (a slightly different number of squid on Feb 1) You can crystalise that and have the flexibilty of paying the mortgage down/off and - great advantage - you then know more or less exactly where you stand. There's nothing worse than the feeling that you're giving your premiums to a bunch of complete 'chancers' for ever and a day. Is the uncertainty* really worth it even if they (untypically) start to raise the rates next month?

*Not so bad for you as you say there's no longer a mortgage

Lorian

EdInvestor wrote:

Could be. Is there any terminal bonus left in the policy, if so how much?

Not much, shall we say for the sake of discussion, 3%

Also this hypothetical polisy may have been subuject to the SL "Mortgage shortfall promise"

http://news.bbc.co.uk/1/hi/business/3724102.stm

Is this still likely to pay out any % of the shortfall, and therefore sway the decision to a "keep"?

EdInvestor

The mortgage promise is basically a dead duck.

It's very unlikely it's worth keeping this policy beyond the Feb bonus declaration, but should you go before?.

What did they pay in the way of reversionary bonus last year?

Milarky

Lorian wrote:

Not much, shall we say for the sake of discussion, 3%

Also this hypothetical policy may have been subject to the SL "Mortgage shortfall promise"

http://news.bbc.co.uk/1/hi/business/3724102.stm

Is this still likely to pay out any % of the shortfall, and therefore sway the decision to a "keep"?

The value of the 'promise' was capped at the beginning (it was set to your projected shortfall of £YYY in 2000) But SL have renaged partially (A 'promise' not being enforcible like an actual 'agreement' would be) and they will pay out a rump amount - let's say half of £YYY - but I can't recall the details. Thus the 'shorfall' has increased by the reduction in policy value/reduction in growth rate since 2000 plus the clawing back of a portion of the 'promised' amount.

As you say the Final Bonus is only 3% - I am surprised - it means they can't cut the policy's value by anymore than that. When it gets as low as that there's more scope for it to go up of course (in theory). Standard previously said they hand never 'not paid' a final bonus on maturing polices - and for them to end up in that position would be.... (well, like Blair admitting he wasn't always telling the truth) ... pretty unthinkable.

So my guess is that they will always stop cutting final bonus somewhere short of '0%' - and you would receive at least 3% in four years - maybe a bit more. I just hadn't realised how low the final bonus was.

Then again your 20 and a bit year policy would be in the same range as my 19 and a bit ex policy would be if I still had it - and the final bonus there was 1%-2% last year IIR. It you ask them (they don't advertise it) what the final bonus on all the years from 10 up to 25 are you should find that rates are 0% up until about 15 years. So they are content to pay nothing 'extra' to a large chunk of early surrenders but as those policies move towards the final few years - where you are - they should begin to pick up some final bonus. That is also the 'logic' of with-profits.

And what most often happens in Feb is that the underlying (what they call 'basic') value will move up - as it is stepped in a more or less exact fashion as they receive each premium - by a larger amount than the final bonus falls - if it does fall further that is. I would say that your policy is unlikely to drop in value in a few weeks (i.e. less likely that when I posted before) because I tacitly assumed you were on a bigger existing bonus rate than you are.

Good lucK

EdInvestor

Standard previously said they hand never 'not paid' a final bonus on maturing polices - and for them to end up in that position would be.... (well, like Blair admitting he wasn't always telling the truth) ... pretty unthinkable.

Up until September 2002 they had never imposed an MVA either.

Up until last year they had never demutualised ..... though in fact they had been a plc before they were a mutual.Not many people know that.;)

There's always a first time.

The possibility with this policy is that they will add a guaranteed bonus of 1.5% (say) and cut the TB to 1.5%. Result: no change.

Lorian

They had a letter from SL. The "promise" is likely to still deliver an extra sum of around 5% of sum assured at maturity.