With Profits investments

JimmyTheWig

Hi,

I'm sure I've read over the last few years that With Profits investments are no good.

15 years ago I took out a policy with Sun Life. One of those where you get a free Parker pen for asking for more details and a free luggage set when you take out a policy. The sort of thing that Carol Smilie used to advertise.
They had flyers in the Observer Money supplement, so I figured they had to be good.

I paid £15 a month in the first year, £18 a month in the second year, etc until I was paying £30 a month in years 6-15.
Annual bonuses were added each year (quite big in the early years until the credit crunch hit and they shrunk) with a terminal bonus due at the end that is unknown until the end.

It paid out today - £12,146.11.
We're well chuffed.
I make that around 12.3% AER.


So my questions are...
1. Is this a better return than I would have got in a S&S tracker ISA?
2. Is the return I got better because it is a better product, or just because I happened to time it well?
3. What should I do with the £30 a month that is now going spare to get another payout in 15 years time?


Thanks,

Jim

longleggedhair

Hi Jimmy

These policies are much maligned but my mother and I have invested in them for many years (my mom also has one of the policies with sun life) and have done wonderfully out of them. They are not flexible but That suites some people, giving you the discipline of saving monthly and also a restriction on withdrawing until the end. I personally can't fault with profits.

eranou

A large portion of the value would have been made up of terminal bonus. they are currently paying 280% TB on plans of this type however this bonus was never guaranteed there were times when the TB rate was a lot lower so people with these policies maturing in previous years wouldn't have been as happy as yourself.

dunstonh

I'm sure I've read over the last few years that With Profits investments are no good.

There are exceptions to that. Pru WP plans seem to consistently deliver.

15 years ago I took out a policy with Sun Life.

The first issue with this is that it is an endowment policy. The WP bit is the fund it invests in. The fact it was an endowment was a bad thing. Most endowments had gone obsolete by around 1995. You bought one in 2000. So, you were already buying an obsolete, tax inefficient product before you started.

1. Is this a better return than I would have got in a S&S tracker ISA?

no. Like for like, an ISA will beat an endowment due to the tax differences.

. Is the return I got better because it is a better product, or just because I happened to time it well?

Obsolete product using a fund that is not well thought of...... However, you got lucky on timing. Not so many years ago, people with 15 year plans were just about getting their money back.

kidmugsy

JimmyTheWig wrote: »

What should I do with the £30 a month that is now going spare to get another payout in 15 years time?

Well, if you really are besotted with With Profits, open another. Many Friendly Societies offer Tax Exempt Savings Plans that would accept £25 p.m. Or if you can save more look at a With Profits ISA: the Ancient Order of Foresters FS has one for £50 p.m. It counts as an S&S ISA. (We had a children's policy with them long ago; it did very well.) There are others: I gather that With Profits at NFU has a decent reputation. How about Wesleyan Assurance?

Or just bung it into an Investment Trust's investment plan. Scroll down to p44.

http://www.theaic.co.uk/sites/default/files/statistics/attachment/AICStats28Feb15.pdf


UPDATE: or put it into a one year regular saver and invest the accumulated sum at maturity. Repeat.

DominicH

For comparison, I have a Pru With-Profits policy in a pension that I contributed to from 1997 to 2004. It has returned 4.4% pa, going by the latest final bonus projection. Keep meaning to transfer it out to a SIPP if I can get a straight answer out of them about any market value reduction.

planteria

glad you are pleased JimmyTheWig..
i am invested in various With Profits funds, alongside Unit Trusts and Individual Shares.
as kidmugsy writes, there are various options with Friendly Societies. personally, i wouldn't go with Foresters as their bonus rates are lower than some other societies.

JimmyTheWig

kidmugsy wrote: »

Well, if you really are besotted with With Profits, open another.

I'm not besotted with them. Just impressed with the returns I've got.
But if, as it sounds like, those returns are a fluke of timing then I'll look elsewhere...

JimmyTheWig

So am I right in thinking that a S&S ISA would probably be a better option going forwards?
I've read the article on here and don't really understand it. Or at least I don't really see how it applies to me.

So I'd be looking at putting £30 a month into a broad fund (FTSE All-share index?). Any suggestions as to the best way to do this?

JimmyTheWig

No-one got any thoughts on opening a S&S ISA?

masonic

Well you would probably want to go a bit broader than the FTSE All share. You could look into Vanguard Lifestrategy or L&G Multi Index. Both are composed of UK and international equities, and include options with differing proportions of bonds (and I think property in the latter). You could hold these at a low cost percentage fee based platform such as Charles Stanley Direct. Lots of further information here.