Welcome to Kestrel International-Atlanta

Telegraph.co.uk
Up to 5m investors in 'doomed' with-profits fund
New research indicates £150bn invested in funds with "bleak" prospects.

By Emma Simon
Published: 4:05PM BST 10 Aug 2009

Up to 5m investors hold with-profits

Up to 5m investors hold with-profits policies that are "doomed to fail" according to new research from a firm of financial advisers.
In total more than £150bn is invested in these troubled funds according to Matthew Morris, an specialist with-profits adviser. He said prospects for those with pensions, endowment and with-profits bonds in these funds is "bleak".

Related Articles
• Time to bin your with-profits policy?
• Thousands could miss out on £500 Aviva windfall
Research undertaken by exitwith-profits.co.uk attempts to identify the good, the bad and the downright ugly funds within the with-profits sector.
Mr Morris said: "There are 35 different companies in the UK offering with-profits funds. Some are closed funds, some are open, some offer conventional with-profits plans, others have unit-linked options, some are funds are 100pc invested in gilts, others offer a balanced portfolio, some have guarantees and others do not."
Those investing in unit trusts have clear classifications, which attempt to help investors understand the underlying risk of any fund. But no similar industry-wide system applies to the £400bn invested in with-profits funds.
As Mr Morris added: "Some funds are really quite good, some toxic: the only problem is individual investors don't know which is which."
This research undertaken analysed information from Morning Star, the actuaries AKG, annual returns published by the regulators as well as the life insurers own information published detailing the strength and holdings of each fund.
From this exitwith-profits.co.uk has produced a list of funds most at risk. These include Axa Sun Life, Pearl Assurance, Scottish Widows, Phoenix Life and Equitable Life. A full list is given below.
Mr Morris added: "We believe that around £100bn is invested in this funds." He said he had concerns about a further £50bn invested in "borderline" funds.
He added: "With-profits is a fundamentally flawed concept that does not work in today's economic climate. If anyone needed evidence of it they can get it from the past six months where stock markets have rebounded but penalties have increased on many of these funds.
"It's true not all companies' funds are doomed, but enough of the market has bombed out to cause great concern for millions of policyholders."
But Craig Murison, the with-profits actuary at Scottish Equitable, disputed the findings made by this report. "We would strongly deny that this is a fund that is doomed to failure." Mr Murison pointed out that bonus rates paid on this fund had increased in value over the past five years. He said he expected these bonus payments to continue to rise in future.
In addition, many of the investors in this fund hold valuable guarantees which give them a growth rate of 5.5pc a year, or a guaranteed annuity rate.
He added: "We think that the performance of many with-profits funds has compared well to unit-linked products, and would dispute many of the assertions made in this report."
A spokesman for Equitable Life said: "The Society invests mostly in fixed-interest investments so that we can meet the guaranteed benefits under policies when they are due to be paid. Investing mostly in fixed-interest investments helps reduce risk. It protects policyholders when share prices fall, but also limits the money the fund earns when share prices rise."

The downright ugly:
Axa Sun Life
Equitable Life
Lincoln National
National Provident
Old Mutual
Pearl Assurance
Phoenix Life
Sun Life Assurance Society plc
Reliance Mutual
Scottish Widows
Sun Life of Canada
Zurich Life
The borderline funds:
CIS
Clerical Medical
Ecclesiastical
Royal Liver
Royal London
Scottish Equitable
Scottish Provident