standard life

Kantankrus_Mare

Sat here chuckling to myself at the differing opinions of editor and dunstonhs replies.
Not just on this thread but on all other endowment threads.

Will be interesting to see who is right lol

Ill keep shtum on who my moneys on. Thats if ive got any left after all this endowment fiasco!!!

dunstonh

Generally, we do agree on most the issues. However, its mostly on Standard Life where we disagree.

Standard Life offered a variety of endowments over the years. Some are average, some poor, some very good. The main difference of opinion though is over the terminal bonus.

Editor appears to have read something that suggests its a disaster at Standard Life. I however, have read nothing and having done a search, cannot find anything to support that. Lots of documentation on the Standard Life management errors, which cost SL a lot of money (and policyholders). However, nothing to see them anywhere near the Pearl, NPI, Sun Alliance or Equitable Life stage. Standard Life were unfortunate enough to be the first company to go through the FSAs new reporting method on financial strength (often referred to as realistic reporting). As the first company to go through it, there were a number of things that needed to be altered and reviewed. The press picked up on this and painted a worse picture than was actually the case.

Some policies I have access to from Standard Life have seen an increase in the terminal bonus over the last 12 months. That would again work against Editors view.

In very, very simple terms, say you invested £10,000 in a with profits fund before the stockmarket crash. Say when the FTSE was 6000. It is now 5000, So the underlying investment is down. However, you £10,000 is still there. So the insurer has 2 problems. What if everyone took the money out? and How can you pay money when we havent made any? The first one is covered the the Market Value reduction and the ability to remove terminal bonuses. The second one is to reduce bonuses and wait for recovery. That recovery hasnt been happening quick enough and is unlikely to change in the short term. Slow and steady is the current progress.

However, what if you put your £10,000 into the With Profits after the stockmarket crash. If the FTSE was 4000 at the time and its now 5000. You would have no market value reduction and because your time in the with profits fund has seen growth, you would see the standard bonus rate that everyone else is getting but you would have a greater terminal bonus accruing behind the scenes because you are getting your share of the growth.

That is a very simple way of looking at it and you have to remember its not linked to just the FTSE100 but all sorts of investments. However, the principle is the same.

Now, if you equate that to monthly payments, you have to average out the time you have been invested. Did you put in the bulk of your money when the markets were high or low. For example, If you started a short term endowment in 1995, then things do not look too good for you. You would have virtually no money invested in the early days and just as you start to build up some money, the stockmarket crashes. Its going to take a very long time for that shortfall to be caught up again and low bonuses are likely to remain. However, your monthly payments after the stockmarket crash are going in nice and cheap and they have better potential. If you have enough time and the current situation continues, you will see better terminal bonuses on the money since the crash than those before. You may not see any on those before if it doesn't recover.

Unless things go really bad for Standard Life (like NPI, for example), then they could wipe out all terminal bonuses on conventional with profits regardless of when you invested. However, they do not appear to be anywhere near that stage and if you look at Pearl (for example), they have started paying some terminal bonuses (they call it additional bonus) again this year on some plans and they are in a far worse position than SL.

At the end of the day, the endowment payout is based on investment returns over the term of the policy. If your term has little or no growth you wont get much and you will not hit the target. If your term has better growth than needed, it will hit target and could give a surplus. This is why you get some with surpluses and some with shortfalls and that will continue. It is one of those cases where you have to say that I will let you know what you should have done at the maturity date. Nobody knows for sure.

One further thing to consider is that Standard Life have been discussing in public the likelihood that they will allow you to have a free switch out of the with profits fund after demutualisation into any of their other funds. If that happens, then you could take advantage of that to put the endowment into more suitable funds and have far better potential for growth and not have to lose a load of money due to surrender penalties. It looks like the current path will be, wait until demutualisation, take the benefits and then switch to commercial property and index linked (or any other spread that suits your personal views on investment risk)

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Note that I have simplified the process of with profits smoothing to keep it readable. There are other mechanisms and different companies use different ways of smoothing so you can't always compare like for like. Things like charges and where the company invests the money will have a big impact on returns (ie.e mostly stockmarket before the crash, now mostly fixed interst,gilts etc after the crash means there is little potential to make up the shortfall for a very very long time). These need to be known and even then it is still guesswork.

EdInvestor

dunstonh wrote:

One further thing to consider is that Standard Life have been discussing in public the likelihood that they will allow you to have a free switch out of the with profits fund after demutualisation into any of their other funds. If that happens, then you could take advantage of that to put the endowment into more suitable funds and have far better potential for growth and not have to lose a load of money due to surrender penalties. It looks like the current path will be, wait until demutualisation, take the benefits and then switch to commercial property and index linked (or any other spread that suits your personal views on investment risk)

The bit in bold the main thing Moneysavers need to know and on this DH and I do indeed agree.My only caveat is for people with large and very old policies >25 years, which may still have a chunk of TB in them : IMHO they should get advice about taking the money and running Most of the people protesting at the AGM this year were in this category, including the chap who stood for the board.Some of these people will have lost tens of thousands of pounds because they did not pay attention to what was going on.

But I don't think there are too many people like that here, are there? Moneysavers are perhaps a bit smarter....;)

I also agree with DH's "before (bad prospects) and after (better prospects) the stockmarket crash" analysis of SL With profits investment performance - but virtually everyone posting on this board with a query is in the "before" category and thus I have only considered their position, as the other is irrelevant. Hence the overall outlook comes across as poor.

Speaking as a Standard WP investor after the stockmarket crash myself however, AFAIK we are still in MVA territory ( though it's well down from it's heights).New TBs are a way off yet, methinks.

Kantankrus_Mare

see what I mean? lololol

EdInvestor

Hi KM,

The differenced between DH and I tend to arise because of different perspectives I think. For instance re the "disaster" at Standard Life, it is true that what happened was not as bad as at Equitable or NPI/ Pearl, or indeed RSA, where all the WP funds have been forced to close to new business and be invested in the dreaded bonds.

Standard is still open. But it has lost 80% of its capital - and that's why it has to demutualise, to get new capital. Now IMHO pretty well any shareholder ( and as members at SL we stand in place of shareholders as it's a mutual) at any company would think it was pretty disastrous if the management lost 80% of the shareholders' capital - and 8bn quid is not a small number, is it? :mad:

The share price would crash and heads would roll, and rightly so. And that's more or less what did happen at Standard - the CEO was kicked out, their bond price crashed and the FSA went in to enforce the rules properly. They announced they would have to DM to get new capital.

So DH is right to say the disaster wasn't as bad as at Equitable or AMP/Pearl, but I think I'm right to say that losing 8bn quid of the members money is pretty disastrous, even if they didn't quite manage to kill off the company completely. :rolleyes:

Moving on though, the new management is looking a lot better than the old lot, so I'm reasonably confident that they will handle the DM in a way which is fair to the members, with no unexpected downsides.They are keen that we stay on as customers and shareholders after the DM, so we should be able to expect good treatment.

They also know there are many people watching what they're up to now, making sure they stay on the straight and narrow, unlike in the past.;)

carnet

Editor wrote:

I'd expect a minimum of 10% for the variable

If SLAC follows the precedents set by other Life Offices which have DM'd in recent times, most noteably Scottish Widows, the variable amount (at least in respect of the vast majority of WP policies which are payable by monthly premiums) should be calculated on a "sliding scale" based on the amount of the monthly premium ( not the policy value) and the year the premiums started. There will also be, inter alia, an adjustment based on the age of the (older) life insured when the policy started.

Therefore there will be any number of "percentages of policy value" in play and any reference to a minimum percentage will be quite irrelevant to all those WP policyholders who had held their policies for a year or more before the qualifying "cut-off" date.

The only people it might be meaningful to are those who took out a WP Bond just before the cut-off date - most other recent WP "joiners" would, most likely, have been carpetbaggers with their one-off £20 stakeholders, so any variable for them will be miniscule anyway - if payable at all .

dunstonh

Speaking as a Standard WP investor after the stockmarket crash myself however, AFAIK we are still in MVA territory ( though it's well down from it's heights).New TBs are a way off yet, methinks.

Just got of the phone with Standard Life and was told that investment bonds investing in with profits from about Mid 2002 would have no MVR and would have some terminal bonus. Perhaps the disclosure of terminal bonus accrued applies equally to unitised with profits funds as much as the conventional wp funds.

EdInvestor

Hello carnet

If SLAC follows the precedents set by other Life Offices which have DM'd in recent times, most noteably Scottish Widows.....etc


I wouldn't necessarily expect a carbon copy of previous DMs - in particular the Friends Provident model wouldn't seem to be one to copy. It is of course true that length of time you have held your policy is important as well as policy value.

It wouldn't be fair if someone who had put in 50k a few weeks before the announcement got the same as someone who had built up a 50k policy over 25 years - the latter should get more, as s/he has contributed more to the WP fund.But those with the older,larger policies will anyway benefit from the fact that windfalls are percentage based (most new policies are very small as you say)and many of them will enjoy other benefits which they are only just now being charged for.So it's not clear that the differential needs to be very large.

In any case these issues will be under discussion with management and the independent actuary in due course as part of the commitment to make sure the demutualisation is fair to all members .

EdInvestor

dunstonh wrote:

Just got of the phone with Standard Life and was told that investment bonds investing in with profits from about Mid 2002 would have no MVR and would have some terminal bonus.

Good, pleased to hear it. It's about time.

carnet

dunstonh wrote:

Just got of the phone with Standard Life and was told that investment bonds investing in with profits from about Mid 2002 would have no MVR and would have some terminal bonus. Perhaps the disclosure of terminal bonus accrued applies equally to unitised with profits funds as much as the conventional wp funds.

Well, Mrs. carnet took out a SL WP Bond (roll-over of a maturing WP policy ) on 14 June 2002 (and you can't get much more "Mid 2002" than that !) and, as of todays date, on SLAC's website, it is still showing an (albeit small) MVR .

Also, no sign of any TB - but there wouldn't be, would there .