With-profits payouts fall again

There was more bad news for with-profits fund investors, as Aviva announced that it was cutting payouts by 17%. Other with-profits funds that have reduced payouts are CGNU, Culac, Provident Mutual and Aviva Life and Pensions.

Financial data provider Moneyfacts says that all providers except Standard Life and Healthy Investment have recently cut with-profits bonus rates, from its review of the funds in April this year.

These once popular investments used to hold back profit from the good years to smooth over the bad years, but a lack of transparency made it difficult for consumers to know if the payouts were fair or not, and sales commissions were hidden, yet thought to be very high. With-profits funds have suffered from slashed payouts in recent years and there is no sign of a reversal of the trend.

This is bad news for the over 50s who have invested in these funds and anyone nearing the point of maturity of a with-profits fund.

With payouts falling year by year some investors have taken their money out. This has resulted in many providers reinstating market-value reductions (MVR), which is their way of clawing back returns if investors try to get out early. However, paying the MVR may still work out better than hanging on and getting and ever-reducing payout.

Matthew Leach of Skipton Financial Services says: “We generally tell clients to ignore the MVR, unless there is some sort of guarantee attached to it – for example, a chance to exit the fund without an MVR.”

If you have a pension product with a with-profits fund, you need to check for guaranteed annuity rates, which are included in some older policies. These can be as high as 12% so very valuable to anyone about to retire, as annuity rates these days are around 3-4%.

It is also worth checking the tax implications of cashing in your investment.

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