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".

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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

It has now been made clear that the reduction from 5% p.a. to 2.5% p.a. in the maximum rate of increase associating UK pensions with the Retail Price Index (RPI) will be limited to "pensions-in-payment".

The value of UK pensions that are not in payment will follow RPI but will continue to be allowed to increase up to a maximum 5% p.a.

RPI is currently at either zero or negative. The pensions industry is going to regard negative RPI as being zero. There is no intention to decrease the value of pensions in line with a negative RPI.

These "defined-benefit" pension schemes, that are frozen from further contributions when the pension member emigrates, have always been subject to restricted growth. Some 8 different indices are used in calculating the effect of inflation but hitherto the Retail Price Index (RPI) has been the default index. Until now the pension schemes' actuaries allowed the value of benefits to combat inflation by increases in line with RPI - but capped at a maximum of 5% p.a.
This maximum has just been reduced to 2½% p.a. In other words, unless the value is transferred elswhere the pension cannot grow at a higher rate than 2½% p.a. RPI is currently at 0%. Not much joy in that.
Tim Carroll

The so-called "lifeboat" - otherwise known as the "Pension Protection Scheme" - is not funded by the British Government but by a levy on UK pension providers. It results in successful pension providers having to cough up money to bail out the failures like Royal Mail (The Post Office).

This is an interesting example, in fact, because it is already known that if the Royal Mail's Pension Fund is not funded by a BUYER its claims will completely swamp the Pension Protection Scheme. There would be insufficient final-salary schemes to fund its liabilities - which are currently £230 Billion.
Tim Carroll