Whole of Life Bonds, and "guaranteed annual bonus"?

Argentaria

I have a Phoenix Life Whole of Life Unitised Bond. This started as an NPI Capital Investment Bond in December 1991, with £10,000 invested. The With Profits Fund (Series 1) in its first years had varying annual bonuses around 5%, but these dropped to 3%, and are guaranteed at that. The Phoenix documentation still says ‘The rate of annual bonus is guaranteed to be at least 3% per annum.’ The investment has now grown (round figures) to £33K whereas the cash-in value is £18K, net of MVR. (I do understand what MVR is for.) There is no final bonus to look forward to.

But doesn’t ‘guaranteed annual bonus of 3%’ mean what it says? Why haven’t I got a cash-in value of £25K (£10,000 at compound interest of 3% over 31 years)? Instead, I’ve got £10,000 compounded at 1.92% over 31 years = £18K.

MVR used to bring the cash-in value down by about one-third of the total value; it’s now more like 45%. Is this typical? Even though the total value of the investments is rising slightly, the MVR is increasing as a proportion: why?

GDB2222

Under what circumstances can you get the money out without a MVR applying?  Only when you die?

Argentaria

Yes; at death they pay value of fund x 1.01 The info says 'This is an open-ended savings policy. It has no specific end date but is meant to be a long term investment.'

Linton

Argentaria said:

I have a Phoenix Life Whole of Life Unitised Bond. This started as an NPI Capital Investment Bond in December 1991, with £10,000 invested. The With Profits Fund (Series 1) in its first years had varying annual bonuses around 5%, but these dropped to 3%, and are guaranteed at that. The Phoenix documentation still says ‘The rate of annual bonus is guaranteed to be at least 3% per annum.’ The investment has now grown (round figures) to £33K whereas the cash-in value is £18K, net of MVR. (I do understand what MVR is for.) There is no final bonus to look forward to.

But doesn’t ‘guaranteed annual bonus of 3%’ mean what it says? Why haven’t I got a cash-in value of £25K (£10,000 at compound interest of 3% over 31 years)? Instead, I’ve got £10,000 compounded at 1.92% over 31 years = £18K.

MVR used to bring the cash-in value down by about one-third of the total value; it’s now more like 45%. Is this typical? Even though the total value of the investments is rising slightly, the MVR is increasing as a proportion: why?

AIUI You only get the guaranteed amounts if you hold to maturity, which in your case is, I assume, death..  If you cash in before then you may suffer an MVR depending on the economic conditions at the time.  SInce it is a pooled investment rather than a separate bag of gold with your name on it the fund cannot cope with everyone cashing in when prices are low.  The MVR is set to the level where drawdown is sustainable without jeopardising the guaranteed payments at maturity.

dunstonh

Only the annual bonus has the guarantee.  The final bonus will be variable and will go down as well as up.

Argentaria

Thanks very much to all responding so far. So 'guaranteed annual bonus' means that when I die, the bonus will be no less than 3% p.a. for the whole term, but if I cash in early, there's nothing guaranteed? (It is explictly stated that there is no final bonus.)

My other question: is an MVR amounting to approx 45% of the fund's value within the to-be-expected range in current circumstances? Or is it an indication that this is a fund whose investments are doing quite badly? (For many years, the MVR used to hover around 33% of value.)