With-Profits policyholders hit again

Hundreds of thousands of savers, many of whom are elderly are now trapped in with-profits bonds and endowments after exit penalties were put in place last week by major insurance companies.

Increasingly desperate in the ongoing financial turmoil, insurers have imposed huge cuts in final bonuses on maturing policies. Just one example is a 20-year policy with £200 per month saved with the Insurer Legal & General, now is only worth £91,000 compared with £98,500 just recently.

Aviva (Norwich Union) and Friends Provident have imposed exit fees on policy holders who wish to exit early. This will come as a blow to many retired policyholders who have seen the values of their investments slump and now cannot even escape early without avoiding hefty penalties.

Aviva policyholders fare even worse. They are introducing something called “Market Value Reductions” (MVRs) which will reduce the value of a policy by up to 22% if you try to cash in unitised with-profits pensions or bonds. Most other insurers already charge MVRs. MVR percentages can also change without notice, as they “move with the market”.

The charges and fees are of course designed to deter policyholders from pulling out their money, even if the holder can see the value of their investment shrinking considerably.

  What's this?