The without-profits funds by Finance News Bulletin

Published: 18/01/07

Anyone still clutching a mortgage endowment might have hoped that payouts would start increasing again, especially as the stock marketplace has been rising with scarcely a pause for almost four yearsSo they will have been sadly disappointed by figures shaped by Norwich Union and Friends Provident over the history week Norwich Union controls four with-profits funds and they are all paying out less to investors than last dayIncredibly, half of all the Norwich Union 25-year endowments growing this year won't have grown by enough to pay off the mortgage

This is inexcusableHard-pressed homeowners will of course wonder what on earth happened to all those years of stock market enlargement: the last quarter-century has been a bumper one for the market and it is frankly incredible that they have suffered such deprived returnsThe flagship Norwich Union finance, known as the CGNU finance, will this year disburse £46,829 to someone who has saved £50 a month for 25 natural life, assuming they were 29 when they took it out Those who were older will receive even less because part of their premium pays for life pledge, which is more expensive for older people

A similar policy maturing at the begin of 2006 would have paid £50,295 This 7% fall in payout comes after a day in which the stock marketplace, as measured by the FTSE All split, rose by 119% and Norwich Union's fund grew by 117% before tax

Those with reasonable memories will recall when this fund (formerly recognized as General Accident) returned more than £120,000 for a £50-a-month asset in the late 1990sThe reason for these money existing now is tenuous to say the least What is more extraordinary is that anyone should be taking out new with-profits savings - but they are, and often under encouragement from monetary advisersEndowments were supposed to smooth ups and downs in the stock market over a long-lasting period, but they have done nothing of the sort

Three bad investment years from January 2000 to demonstration 2003 have scuppered the whole proposal, and the actuaries and investment managers have unsuccessful to deliver on the promises made to millions of investorsThe ride promises to be bumpy for the predictable future as more emphasis is put on fatal bonuses and less on the bonuses additional annually to policies So smoothing, which was the only selling point of with-profits, is deadInvestors are also told that you shouldn't evaluate one year's policies with the previous ones because they are over dissimilar investment periods

For instance, a 25day policy maturing at the start of 2006 would have been invested from the start of 1981 to the end of 2005, whereas one maturing now would have been invested from 1982 to 2006 Fair enoughExcept the total return from shares in 1981 (which a rule maturing this year will have misplaced was 72%, while the return in 2006 (which this day's policy will have gained) was 16

8% So why are policies maturing this day paying less than those maturing last yearTo blame the downturn at the begin of the century, as many insurers continue to do, is pathetic These policies have had 20 years' optimistic stock market returns against five years of negative ones, precisely the same figure as a policy maturing at the start of 1998

Yet the 1998 policy paid more than twice as muchThe only truthful explanation is they got it badly wrong by paying out far too much in the 1990s in order to be at the top of tables read by financial salesmen who were too thoughtless and dumb to see the writing on the wallIt's not now homeowners who are pain in with-profits funds Millions of people have their pension trapped in these ailing funds and will be strike with cruel penalties if they attempt to retrieve them

They will suffer the consequences of insurance company misconduct for the whole of their retirements The situation has not been helped by stupid civil servants and ministers who have played into the hands of the cover industry and almost routemarched investors into their armsPensioners investment with-profits bonds have suffered a similar fate, with some still trapped by marketplace value adjustment penalties because insurers haven't managed to break even on their savings This is an extraordinary example of poor organization because even an asset in a FTSE tracking fund made when the stock market was at its peak in December 1999 would now be in profit gratitude to income from dividends

But I suppose someone has to pay all that task to salesmen, bonuses to finance managers and directors' pensions - and that someone is you, even if it does mean your own pension won't deliver the comfy retirement you had hoped forLast week's Bank of England bottom rate rise not only took everyone by surprise, it also sparked a stampede for mortgages Not surprisingly everyone is touting set rates to protect borrowers from further increases There's a logic to this, particularly if further speed rises would put the family budget under serious stress

But if you have plenty of financial leeway then you might want to consider whether now, when we've already had three bottom rate rises and could be moving towards the peak in the cycle, is really the best occasion to fix your borrowingchoose a loan term 12 months (1 year) 24 months (2 natural life 36 months (3 natural life 48 months (4 natural life 60 months (5 natural life 72 months (6 natural life 84 months (7 natural life 96 months (8 natural life 108 months (9 natural life 120 months (10 natural lifePlease select a type of insurance Life insurance Home and contents Car stop working services Health - medical Health - dental Travel Pet - afflict Pet

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