It is estimated that there is £450billion of UK savers and investors money sat in stagnant or overpriced investment funds*.
Many savers and investors have not reviewed their savings to ensure the ongoing suitability and efficiency of them, and as such may be losing out by not taking action.
From the 1970’s, With Profit funds were very popular investments for many, including for endowments which were designed to pay off mortgages, amongst other objectives. They were sold as generally being low risk, and employed a tactic called ‘smoothing’.
Smoothing is where the life company running the fund would hold back profits from the good years in order to apply the reserves to the bad years, aiming to give the investor a smooth return over time.
Since 2000 however, many with profit funds have cut their bonuses – and in some cases removed them altogether, meaning that many investments simply are not growing. This is bad news considering that the total UK inflation since 2000 has been 55%**.
It is estimated that With Profit investments account for £220billion across 12million savers in the UK*.
It might not be all bad news though, because there are some With Profit funds out there which will pay a healthy ‘final’ or ‘terminal’ bonus, depending upon the year the funds were invested and the market conditions in the meantime.
Many With Profit funds do not explicitly state the cost of running the fund either, so investors do not know how much is being retained by the life company and what is being distributed to investors. This illustrates the importance of regularly reviewing an investment or a portfolio which will ensure that the investments held remain suitable for individual circumstances, which change over time.
This article is for information only and before undertaking any specific action, please seek independent financial advice.