Norwich Union Portfolio Step-down: any good for income for a 63-yr-old?

jem16

Wurz wrote: »

Nice to see that this post is still active! My IFA says the ONLY fund he could recommend at the moment is Canada Life. He says thay are offering 109% of original investment (to entice new business) and if you want to cash-in in the first year you would get the first 75% penalty free.

You seem to be a little confused here.

Canada Life is a provider not a fund and from what you have just said your IFA is recommending another investment bond just like the Scottish Widows bond.

It's also not Scottish Widows that have lost you money as you keep saying but the funds that you are invested with inside your SW bond.

I have a SW pension and I have SW funds inside it that have increased and others that have decreased. It's nothing to do with SW and all to do with the sector that the funds are in.

As I won't actually see my money in my bank account until 29th Jan '08 I have told him that the only way I'll be interested is if he gets a history of the funds he suggests, perhaps over the past couple of years and certainly the past few months where Scottish Wids have failed abysmally. I had telephone conversation that SW's had received my letter yesterday (Friday18th) but that they will only send what is the value of the bond "the next working day" as that will be Monday I now have to sweat it out over the next three days as to how much more they can lose. In other words, wait until the posted value on Tuesday morning....what a con!

You may lose more if the bond still has an MVR attached to it.

I wonder which web sites and forums we could use to embarrass SWid's and cost them new business?

There are very few medium and cautious risk funds that are not down over this last year - nothing to do with SW. Only high risk funds have had a good year.

I think your IFA needs to explain investing to you and perhaps re-assess your risk profile as you don't seem to have a full understanding of what is going on.

dunstonh

My IFA says the ONLY fund he could recommend at the moment is Canada Life. He says thay are offering 109% of original investment (to entice new business) and if you want to cash-in in the first year you would get the first 75% penalty free.

What is the reduction in yield on the Canada Life investment over 10 years (i.e. what is the 6% figure reduced to? How much of that 109% do they take back as initial and establishment charges?

I have told him that the only way I'll be interested is if he gets a history of the funds he suggests, perhaps over the past couple of years and certainly the past few months where Scottish Wids have failed abysmally.

That is not good judgement for investing. Some of the best areas to invest at the moment have just come off a period of 2 years where they did little or nothing. Some of the worst areas to invest now have just come off a period of 2 years of decent gains.

I am terribly tempted to go for an over the counter Bond such as Bradford & Bingley's where they will pay 5.5% [6.31%] which after tax is worth around £41.75 per month on each £1000 invested

And next year is worth 3% less in real terms due to inflation. Every 10 years you would only have around 70% of the current value in real terms.

I wonder which web sites and forums we could use to embarrass SWid's and cost them new business?

You really need a proper investment adviser to teach you correctly about investments. Scottish Widows bond is better than Canada Life. Yet Scottish Widows isnt the best bond currently either. Changing the tax wrapper isnt going to make a signficant difference to the returns. The funds within the bond (Tax wrapper) is where the performance is and every provider will offer funds that have periods of decline and growth. You have to compare like for like.

munk

@wurz - I would only add that if you're thinking of moving over to an equity based investment be very cautious at the moment and maybe for the next 6 months or so until the fallout from the subprime fiasco has been realized (don't jump out of the fire into the frying pan!).

You could do a lot worse than splitting the money across a few high interest savings accounts until you've had time to fully research the options you have available to you (during which time hopefully the volatility in the markets will have settled somewhat).

Wurz

Munk. I think you are quite right; the high interest accounts seem to be the only safe bet for the next year or so. I cannot understand why these (SW’s) bonds cannot perform better than the bog basic ones. Even national Savings is performing better than Scottish Widows. It’s alright for dunstonh (and I do like his comments from previous times) reminding us about the effects of inflation, but if SW’s can only manage a couple of percent it follows that my original investment of £100k not only has failed to keep pace with inflation, but has lost £9k of the original capital. If I had invested in an over the counter jobbie 4 years ago I would still have £100k and would have made more than 2%. Now I’m faced with a capital loss having endured 4 years of SW’s ineptitude. Still, what do they care, they gave lousy customer service, the original advisor who sold me the original bond quit a few months later, but they will still charge me a penalty for salvaging what’s left of my original investment. As for changing/switching funds, when I asked for information about any SW’s funds that were not losing money, no one, not even my IFA could provide answers. I actually said to SW’s that if they had any, I would not cash in but switch. They couldn’t or wouldn’t. They obviously do not want my business. Now if anyone on the forum has better ideas of what to do with £91k (provided the enforced delay doesn’t cost me more-and I don’t know of an MVR –whatever that is-attached to my policy) I would be highly interested.
I mentioned to the SW’s customer services people that I spoke to about Money Mails verdict “SELL” any SW’s bonds and all they could say was that the Daily Mail doesn’t like them. Nor do I considering that I lost £1400 on that day (Jan 16th). It wasn’t as if one fund had lost, ALL had gone down virtually an equal percentage. If it’s of interest, I was in the following: Property,SW Newton Managed,SW InvP High Income, Cautious Portfolio, and Balanced Solution. When I originally came to this post I had all in one fund-the original buy, which was “Fixed Interest” This started life in Jan ’04 as £104706 in Jan ’05 was worth £104469, Jan ’06 was £105639 Jan ’07 £99451. By August ’07 this had dropped to £97026 (cash-in £94350-oh how I wish I had!) and so I came to the forum and then went to an IFA. He recommended the changes, which saw Sept ‘07, rise to £99263 – which restored faith, but dropped to £98741 in October, £96624 in November, up to 97680 in December ‘07 and now the disaster in Jan ’08 as £93464 before penalty of £1818. About £91630 cash-in. So what happened that was so dramatic in the first couple of weeks of January ’08, or is SW’s going the Northern Rock route? Oh, they made sure the Statement I was sent on the anniversary date of 4th Jan look reasonable rosy at £97243 with a cash-in of value of £95282 but after reading the mail on Jan 16th I looked on line at current values and that is when I saw red with losses of nearly £4k in a matter of days. That’s a year’s income gone. (I was getting £375 monthly) So you can understand why I pulled the plug! Now, where shall I put the remains to good use?

jem16

Wurz wrote: »

Munk. I think you are quite right; the high interest accounts seem to be the only safe bet for the next year or so. I cannot understand why these (SW’s) bonds cannot perform better than the bog basic ones. Even national Savings is performing better than Scottish Widows. It’s alright for dunstonh (and I do like his comments from previous times) reminding us about the effects of inflation, but if SW’s can only manage a couple of percent it follows that my original investment of £100k not only has failed to keep pace with inflation, but has lost £9k of the original capital. If I had invested in an over the counter jobbie 4 years ago I would still have £100k and would have made more than 2%.

You have an Investment Bond which can go up and down with stockmarket performance. Normally over a period of 5 or more years the performance would beat that of savings accounts provided the correct funds are used. There will be some good years and some bad years.

Now I’m faced with a capital loss having endured 4 years of SW’s ineptitude. Still, what do they care, they gave lousy customer service, the original advisor who sold me the original bond quit a few months later, but they will still charge me a penalty for salvaging what’s left of my original investment.

Without reading back through the whole thread it sounds like you have had advice from a tied rep as opposed to an IFA.

Most Investment Bonds have a penalty for leaving within the first 5 years - that's what is called the MVR I mentioned earlier. The Insurance Bond usually gives an enhanced initial allocation ( as in the 109% you mentioned for Canada Life ). This basically compensates for the higher charges throughout the first 5 years - if you leave earlier they claw it back.

As investments should not be considered for less than 5 years this should not really be a problem and should have been explained to you at the time of sale.

As for changing/switching funds, when I asked for information about any SW’s funds that were not losing money, no one, not even my IFA could provide answers. I actually said to SW’s that if they had any, I would not cash in but switch. They couldn’t or wouldn’t.

SW cannot give you advice - they are not authorised to do so. They should have referred you back to the IFA.

There are plenty of SW funds that have increased over the last year, including most of the funds you are now in. Property has been the worst hit ( not just SW but the whole sector) but has always returned double digits for around 16 years prior to that.

http://www.trustnet.co.uk/life/groups/perf.asp?sec=all&status=&def=&sort=18&ss=0&group=scot_wid

You need to stop thinking it is SW's fault. It has really been the fault of the fund you were initially invested in not being good enough and the funds you now have not getting enough time to outdo the damage caused earlier. If you had seen an IFA from the outset who had set up a diversified portfolio you would probably not be in this position.

RammieD

Myself and my wife have found this thread most interesting as we are in a similar position.
We put £150K into the Scottish Widows Discovery Plan (a supposedly 'reasonably cautious' option) in April 2006 after downsizing on property and taking early retirement from the end of March 2007.
We arranged to take £625 per month from the investment from April 2007 (giving it 12 months to build up funds), expecting that the original figure of £150K would 'at least' be maintained.
In May 2007 fund value was at £154K with a unit value of 103.90p, not too bad at all!
From there it has been nothing but a downward trend, now with the fund value standing at £142.5K and the unit value just 99.7p.
We have had 10 payments, but even adding the £6.25K back we are still below the original investment sum of £150K, after almost 2 years sitting with Scottish Widows.
As we are less than 2 years into the investment we would pay heavily for cashing in early, receiving only in the region of £138K.
With that wonderful thing called hindsight putting the money in a normal savings account would have increased our £150K to 'say' £160K, instead of the £138K (+£6.25K already received) if we jump ship now. Effectively, taking the interest into account, a 'loss' of some £16K.
We are very much undecided whether to sit it out and hope that over the long term the bond will recover, or get out now to save losing even more.

dunstonh

In May 2007 fund value was at £154K with a unit value of 103.90p, not too bad at all!
From there it has been nothing but a downward trend, now with the fund value standing at £142.5K and the unit value just 99.7p.

I assume from your comments that there is only one fund. You should never invest in just one fund. That is old fashioned and results in lower returns in the long run. Its only tied agents and naff advisers that do this nowadays.

That said, it is no surprise that it has gone down. The second half of 2007 was a poor period.

With that wonderful thing called hindsight putting the money in a normal savings account would have increased our £150K to 'say' £160K, instead of the £138K (+£6.25K already received) if we jump ship now. Effectively, taking the interest into account, a 'loss' of some £16K.

Like above, it appears your knowledge about investing is zero. Investments zig zag in the short term. You get periods like this. If you take a typical 5 years you could expect one bad year, one year that does nothing and 3 good years. The average of which is what you take. You dont look at a good year and assume thats what you get every year and you dont do the same for the bad year either.

We are very much undecided whether to sit it out and hope that over the long term the bond will recover, or get out now to save losing even more.

The bond wont recover because it doesnt make or lose money. The investments within it do that. You need it reviewing ASAP by a proper investment IFA. Not a bank tied agent who isnt authorised to give proper investment advice (I am going to assume here that it was a LloydsTSB insurance agent that sold this). You need a bit of "training" to show how investments work and you need the bond altered to give a more diverse portfolio which matches your attitude to risk.

With that wonderful thing called hindsight putting the money in a normal savings account would have increased our £150K to 'say' £160K, instead of the £138K (+£6.25K already received)

Back on this point, I dont think your figures are correct. You would have less than £160k and from May 07 onwards you would be losing money in real terms as there would be no capital growth. Also, the income over the next year or two would reduce as interest rates fall.

If you do want to compare then I just looked up some cautious portfolios invested in April 06 and they are between 6% and 15% up in value and have had "income" paid to them from day 1. Get a proper investment IFA involved. There are plenty all over the country. Dont use low skilled bank advisers.

RammieD

Thank you for your much appreciated comments.
It is a single managed 'balanced' fund, but the investments are in equities, bonds and property, both UK and overseas. We were offered a range of solutions, each based on a different approach to risk against potential gain.
The Scottish Widows options in increasing order of risk are 'secure', 'cautious', 'balanced', 'progressive', 'adventurous' and 'specialist'.
Yes, you are correct in that we used a tied FA. We have been with Lloyds for over 40 years and decided to stay with them (heart rather than head!!!). Also, at the time, Scottish Widows seemed to be up near the top of the investment league tables.
It would appear that we put too much trust in the tied FA, but as you mention in your reply there are also 'naff advisors' out there. Maybe we were concerned about choosing the correct IFA and felt some form of security with Lloyds?
We are due to see our 'tied' FA within the next few days, but having heard him out will probably turn to an independent financial advisor before making our final decision regarding the SW portfolio.

dunstonh

It is a single managed 'balanced' fund, but the investments are in equities, bonds and property, both UK and overseas.

Virtually all lloydstsb investments in life and pensions ends up in the bog standard managed fund (either balanced or cautious).

Also, at the time, Scottish Widows seemed to be up near the top of the investment league tables.

I cannot remember a time that they have been in the investment bond front, as far as product goes. The fund range they offer is average. However, you are in just one fund. There are 2000 odd unit trust funds out there and with your amount you should be invested in around 8-15 funds.

It would appear that we put too much trust in the tied FA, but as you mention in your reply there are also 'naff advisors' out there. Maybe we were concerned about choosing the correct IFA and felt some form of security with Lloyds?

IFAs account for 80% of the business placed in the UK (60% on advice, 20% on execution only). Yet they only account for 16% of the complaints to the FOS. The tied saleforces account for the majority of all complaints. In fact its something like 12 companies alone that represent nearly 2/3rds of the complaints. There are always going to be bad apples in any profession but you are actually safer going to an IFA than a tied agent.

Tied agents cannot portfolio plan. If you look back at your documentation you will find that the choice of the balanced managed fund is documented as "you chose...". Had you seen an IFA, the IFA would recommend the funds. Being recommended a single fund is often a good way to determine a bad adviser from a good one. By the time you have spoken with an IFA you can often tell by the way the recommendations are explained. For example, why was the bond tax wrapper better than unit trusts? Why you should utilise the £7k ISA allowance first etc

Another reason you shouldnt use a tied agent is that they are the most expensive distribution channel. The charges on that bond could be a lot lower from an IFA. If you take the FSA average on commission, its 2.3% plus 0.5% fund based. Lloyds would have taken 5% plus 0.5% (they dont pay the sales rep that. Lloyds get the money and only pay around 1.5% to the rep and no fund based). That is important because had you seen an IFA that took the average, your investment would be £4800 higher now.

We are due to see our 'tied' FA within the next few days, but having heard him out will probably turn to an independent financial advisor before making our final decision regarding the SW portfolio.

Referring to a point I mentioned higher up, did you take out ISAs as well as this bond? The first £7k each should go to ISA. Then its between investment bond or unit trust depending on your circumstances. If the full £7k ISA allowance wasnt used, then this would be classed as a mis-sale.

Investment bonds are not as tax efficient as unit trusts for a basic rate taxpayer (or lower). When arranging on low cost terms that can make them cheaper and that can offset the difference to some degree depending on the investments used. As your bond was arranged on maximum commission basis, that would suggest that unit trusts would have been better for you unless you frequently use your CGT allowance, are aged over 65 and have an income close to £20,900 or you are (or close to being) a higher rate taxpayer who will not be in the future.

So, if you are not any of those, then you possibly have a mis-sale.

RammieD

Thanks again for further comments.
The £150K was our major investment following downsizing. We do have considerably smaller amounts in various secure savings accounts. The £150K was invested to give us a monthly income, to compliment a couple of small private pensions.
We take out our mini cash ISA's each tax year of £3K each, but do not take out mini stocks and shares ISA's. Lloyds TSB in their Financial Review strongly urged that we took out the mini cash ISA's (something that we always do anyway), but did not refer to the mini stocks and shares ISA's.
Our situation is that I am 58 and my wife is 57, both retired since March 31st 2007. The initial discussions with the tied FA started in March 2006, just after downsizing to our current property. Our current monthly income including the £625 from the investment and the couple of small pensions is around £1460.
We own our house valued at around £240K and do not have any loans, etc.