Norwich Union With-Profits Stakeholder

whiteflag_3

bizarre thread!

Self confessed novice, offering to help friend?
If one of my friends was ill I wouldnt offer a diagnosis as im not a doctor:eek:

Despite being a novice it doesnt take long for the dreaded "otherwise I'd suggest SIPP or similar" . So despite knowing !!!!!! all a product is potentially being recommended . ( I think this shows that the financial novices out there seem to believe that SIPPS will sort everything- dont know where they get that from?)

A bit of common sense in the middle of the thread and then complete madness at the end:rotfl: Breaking what law? The cant chat to your mates law?

The day the FOS upholds a complaint for bad advice from a friend, ill move my pension to a SIPP!

Retired_I.F.A.

Well the way this country follows the yanks with their sueing culture I would not be surprised if there has already been such cases before the uk courts.
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whiteflag_3

Retired_I.F.A. wrote: »

Well the way this country follows the yanks with their sueing culture I would not be surprised if there has already been such cases before the uk courts.
.

Fair enough! Now wheres that discharge form.......................:rotfl:

bigbloke45

With NU With profits Fund is the "default" fund i.e. if you don't choose a fund you will automatically be invested in the "default" fund.

The commission is paid by NU and recovered from the annual management fee. If you do some sums, NU are mad. They will never make money on these plans (the average stakeholder/personal pension lasts about 7 years).

DH, I think the fund you are quoting is an old CU (Commercial Union) fund. NU's with profits funds are, essentially CU, GA (General Accident), CGNU (based on the old CU fund) and NU (before the merger with CGU (CU and GA merged companies).

The weakest fund is the old NU followed by GA. The CU fund was/is quite strong and paid good reversionary bonuses but was crap at terminal bonuses!

As far as risk goes, with profits funds were sold as "low risk" but, with an equity percentage up to 70/80% in some cases, they turned out to be anything but! They are quite complicated/non-transparent funds run by actuaries to benefit the insurer and, if they gave a good return, they were trumpeted as great for the investor.

DH, you say that commission is paid by the insurer and recovered from fees. I have said this above, but I have a sneaking feeling that the murky world of with-profits might not be so straightforward. I'll give you a couple of examples; firstly, when CU ran "CUFS" (Commercial Union Financial Services), the whole operation was "owned" by the with-profits fund i.e all costs were debited to the fund. It was finally sold to Abbey Life for £1.00. I leave you to draw your own conclusions! Secondly,as I'm sure you know, insurers have been paying mis-selling compensation out of the orphan assets in their WP fund; Pru's being about £1.2 Billion as reported recently in the press.

So, I think that they can charge just about anything they can get away with to the poor old WP fund, why not up-front commissions as well?

Why am I going on about this? It obviously makes sense to stick people in the WP fund as a default because it's the "cash cow" for the insurer.

Finally, ( I can hear you all sigh with relief!) as a WP fund is really a "smoothed" managed fund but with extra costs taken out, I believe it makes a lot of sense to limit exposure to it simply because of it's risk profile, but more importantly because the insurer can slap an MVR (Market Value Reduction) on it at any time and the poor old policyholder can do nowt about it. (In fact, I can see one looming again, soon!)

Runciblespoon, I therefore agree with DH, EI and others that your mate should do a bit of research and spread his investments around a bit within the NU Stakeholder funds.

dunstonh

The commission is paid by NU and recovered from the annual management fee.

Yep. NU always like to buy market share and cross subsidise many of their products.

DH, you say that commission is paid by the insurer and recovered from fees. I have said this above, but I have a sneaking feeling that the murky world of with-profits might not be so straightforward. I'll give you a couple of examples; firstly, when CU ran "CUFS" (Commercial Union Financial Services), the whole operation was "owned" by the with-profits fund i.e all costs were debited to the fund. It was finally sold to Abbey Life for £1.00. I leave you to draw your own conclusions! Secondly,as I'm sure you know, insurers have been paying mis-selling compensation out of the orphan assets in their WP fund; Pru's being about £1.2 Billion as reported recently in the press.

Perhaps I should have just said via explicit charges then With Profits are a bit smoke and mirrors with implicit charges all over the place.

runciblespoon

whiteflag wrote: »

bizarre thread!

Self confessed novice, offering to help friend?
If one of my friends was ill I wouldnt offer a diagnosis as im not a doctor:eek:

Despite being a novice it doesnt take long for the dreaded "otherwise I'd suggest SIPP or similar" . So despite knowing !!!!!! all a product is potentially being recommended . ( I think this shows that the financial novices out there seem to believe that SIPPS will sort everything- dont know where they get that from?)

As soon as the work 'advice' pops up, everyone starts ringing alarm bells Fair point, perhaps I should have said 'educate'. After all, I might go under a bus tomorrow and there'd be no-one to sue Seriously, I merely started the thread because he doesn't have a MSE account and I just simply transcribed the relevant bits from the documentation into this thread. I started the thread for him to read (and pointed him at it from the beginning). Possibly the tone of my original post came over as 'he's been sold a rubbish pension' - if it did that wasn't intentional.

Indeed, all of this is parenthesised with 'I'm not giving advice, do your own research' etc etc. Except the point being that one uses a managed pension so that you don't have to do as much of your own research picking funds etc because there are so many fewer to choose from. 'Suggesting a SIPP' means 'have a look at that as a route, weigh up the pros and cons, find out the charges, DYOR' not 'A SIPP is the best for you'. A SIPP is by definition a hands-on product, for someone able to do the hands-on research to find out whether it's any good. I haven't personally looked into that option, because it doesn't fit my circumstances right now.

What's harder is understanding more opaque policies like With-Profits because there isn't necessarily a nice little performance graph with charges clearly laid out. This makes it more difficult for me (and him) to understand, which is why I was asking for directions to resources that explain it.

Even if IFAs are the only people qualified to give advice, it's still useful to understand the advice and to have some data points as to whether it's sound advice (noting how frequently dunstonh is telling people on the savings board that some bank adviser has sold them a rubbish product).

As I see it there are three main routes:
1) Company pension fund (Civil service, British Airways etc) - irrelevant if your employer doesn't have one.
2) A pension plan with tax benefits (be it stakeholder, SIPP, whatever)
3) Self-investment (ISA, property etc etc) and optimising the tax position yourself

2) is the area I know least about, hence the reason I started this thread with reference to a concrete example. Take it for my (and his) edification, if you like. All I'm doing is asking slightly more directed questions than 'pension, what's that?'.

I will not say 'you should do...' Directions to resources (books, websites) that explain the principles so he can make his own decisions are really what I'm after...

Retired_I.F.A.

How the tide has changed.

95% of my cases went into with profits and although I'd be switching the majority out if I were still an IFA today I feel a bit sad at the demise of a system that worked extremely well and produced the goods year in and year out. In over twenty years of results on record the top and the average with profit policy each and every year paid out more than it's unit linked managed fund counterpart with it's higher charges. At least until I stopped looking at the surveys when I finished 6 years ago.

R.I.P With Profits and Mutuals, killed by the executives out only to fill their own pockets, the sandbaggers and the I was missold cries of those that fiddled compensation.

EdInvestor

Retired_I.F.A. wrote: »

How the tide has changed.95% of my cases went into with profits and although I'd be switching the majority out if I were still an IFA today I feel a bit sad at the demise of a system that worked extremely well and produced the goods year in and year out. In over twenty years of results on record the top and the average with profit policy each and every year paid out more than it's unit linked managed fund counterpart with it's higher charges.

Ever asked yourself how they managed to do that, given that the two funds were vbasically invested in ecatly the same assets?

Could it be that in the drive for market share and bigger executive salaries and bonuses, the companies were paying out bonuses which were too high, thus squandering the rainy day money in the smoothing fund?

With Profits and Mutuals, killed by the executives out only to fill their own pockets

While many benefited earlier,.WP ended up being a con trick perpetrated on those who were still engaged (unknowingly) in the game of musical chairs after around 2001.

dunstonh

I think you do need to keep the in mind that times have changed. Whilst most with profits funds are no longer viable (Pru and NU exceptions), you are comparing an investment product that was designed a very long time ago and was right for that period. Unit linked wasnt really available until the 90s for the mainstream. Certainly not in its current form until the early 2000s.

Its not really right to compare current options with historical ones as in most cases the modern options are better.

Retired_I.F.A.

They wern't invested exactly the same though Ed, okay the bulk of the investment was simlar but the anual management charges on the unit linked plans went into the with profit fund, the profit from annuities and underwriting of life cover went in there too and with the mutuals who did not spend spend spend on advertising or buying buisness with artificially high teminals or over the top commissions it all went to the benefit of the policyholders.

Could it be that in the drive for market share and bigger executive salaries and bonuses, the companies were paying out bonuses which were too high, thus squandering the rainy day money in the smoothing fund?

Yes very true. In the "good old days" the executives had straight salaried positions no bonus's or share options thus no need or desire for market share. With profit pension plans in force fo say 20 years paid out in excess of a 18% p/a true yield when inflation had averaged just 9% An IFA suggesting a gap of 9% in future planning today would be considered a dreamer. (Dunstonh for instance often posts roughly speaking of a 3 or 4 % gap) Yet the earlier regulatory guides suggested 5% above inflation whatever that may be as being achieable by all.

With profits was a really great system ballsed up by people coming into the companies having been taught at uni all about buisness, market share, expansion and company profits instead of quality, equality, and a fair deal for all which mutuality and with profits had been achieving for donkeys years.

Carpetbaggers were out for a quick profit and got it at the expense of many millions of policyholders as did those who screamed missale knowing full well they were trying it on.

Understanding the concept of mutuality and the philosophy of different companies distibution of profits was essential for an IFA. Commercial union for instance had consistently paid out average matuity values yet were a far more safer bet with their highest of all reversionaries and lowest of all terminals. Royal Life, for many years did simlar. The annual Money Management survey was a core guide for many IFA's as it was truly like for like and rarely ever quoted in more accesable publications. Then the likes of Standard life started declaring bonus rates after every one else. Even so it was the mutuals that dominated the top 10 simply because they had no shareholders taking a cut.

When Stakeholders plans were introduced with their 1% total charges cap the emphasis changed not from who is likely to payout the most in the future and how much of it would be dependent on teminal bonus's but on charges yet the likes of Friends Provident with their reduction in yield of 0.8% including commission blew stakeholders out the water.


"While many benefited earlier,.WP ended up being a con trick perpetrated on those who were still engaged (unknowingly) in the game of musical chairs after around 2001."

It started a few years befoe that I think and if any one person should be blamed I'd say it was Maggie Thatcher as her politics destoyed the whole concept of banding together for the benefit of all members. Unions, Co-Operatives and then the with profit companies were her target back in the 80's.

Today we all stand alone with a sod thy neighbour whats in it for me attitude that costs us all.