News/Events

With-Profit Savings Plans [8th May 08]

One of the most difficult areas we have to deal in is queries on with profit savings plans and I am sure many readers will have been recently thinking about what they should do with their with profits policy.

Perhaps this has been prompted by an article such as this which has highlighted poor performance, the closure of a fund or the sale of a well known insurance company to a completely unknown one. Or you might have received a statement suggesting your savings may not end up being quite what you anticipated?

It is not an easy decision to make especially if you have been paying a premium monthly for the last 20 years and, of course, initially everything seemed hunky dory!

I’m afraid no single answer will be right for everyone as some policy holders may be better off cashing in their policy now whilst others would be better holding on. There are many issues that need to be carefully thought through and the following questions might help you make a decision, but expert advice from a qualified IFA is essential.

Firstly identify what type of plan you have? With profit plans come in various forms such as whole of life, endowment, pension, annuity or maybe the ever popular with profits bond for example.

You will then need to find out how long you have had the policy and how long is left until maturity?  Simply check whether it has a fixed term or is it open-ended.

Do you know what the expected value is if you keep it until it matures and does the policy still meet your needs? You must try and remember why you took out the plan and you will also undoubtedly be giving up some life cover - could you still replace it?

An important consideration is what benefit does your policy have? Some insurers build in a guaranteed minimum benefit if you keep it until maturity or perhaps it’s a pension plan that may include a guaranteed annuity rate. This could be significantly better than current rates, which is the good news but the bad news is they may not be paying any bonus currently.

And lastly, what could you get if you cashed in your policy today? This is where you need a qualified IFA as there could be a MVR (Market Value Reductions) or MVR free dates. For example many with profit bonds taken out with Phoenix, Royal Sun Alliance and Scottish Mutual amongst others are nearing the 10 year maturity date when for some the MVR does not apply. Don’t miss it as it only lasts for a short period.

On the other hand you might have a pension plan and this could possibly be transferred to another company. Mind you, be careful if you don’t take benefits on your normal retirement date, as some insurance companies can, and do sneak in nasty little conditions.

The answer is to review your plan on a regular basis and speak to a qualified IFA who would be please to help.

This article was written by Langtons - Published in the Western Morning News, Money, 8th May 2008