£15 billion held by almost 500,000 investors in with-profits With profits bond/ policyA single premium bond issued by a life company where a lump sum is paid into a with profits fund made up of shares, property, cash and fixed interest securities. With profits bonds use a smoothing device to protect the investor from extreme fluctuations in market conditions.bonds will reach its tenth anniversary during 2011, triggering a penalty-free exit period for many of them. A large number of with-profits bonds have exit penalties, called market value reductions (MVRs), but analysis by Skandia shows that around a third of them have a penalty-free exit period on or after the ten-year anniversary. This means £5 billion can be withdrawn this year without penalty and investors should contact their financial adviser to arrange a review of their investments now to decide whether they remain suitable, or to take advantage of this opportunity.
Skandia’s analysis shows that there are 90 with-profits bond funds that have penalty-free exit dates in 2011 (see table for full list of product providers). These funds paid an average bonus rate in 2010 of 1%, less than the average cash ISA. 34% of these funds are making an explicit charge to meet the cost of the guarantees offered to investors but often these charges did not apply at the time the product was bought. This is just one element of with-profit bond funds that has changed over the past decade.
Sales of with-profits bonds hit a record high in 2001 with 495,000 policies sold with an average investment of just over £30,000. Back then the average with-profits fund was 66% invested in equities, with the remainder invested in a mix of property, fixed interest and cash. Today with-profits funds are significantly different with only 33% invested in equities and a larger amount invested in fixed interest.