With Profits - Should you stay or
move your money?
With Profits as a concept has been around for over 100 years and over that time has worked
well for investors. The concept is simple. In years when investment returns are
high, not all of the profits are paid out to investors, some are put aside for times when
returns are not so good and the money put aside can then be paid out. Historically the out
come from this has been steady and consistent returns without exposure to the volatility
of the actual assets within which the With Profits fund was invested. However in
recent years this has all turned sour. From 1999 through to early 2003 investment
conditions worsened such that managers of With Profits investments found it impossible to
actually make any profits. No one expected such a sharp down turn and With Profits
companies kept dipping into their reserves to declare bonuses in the expectation that
things would soon get better. As we all now know, they didn’t, they just got worse.
The result was that at the same time that they were losing money on their investments,
companies were using up reserves in maintaining bonuses. Many companies got into the
situation where the value of investments they held plus the reserves was in danger of not
covering the bonus promises they had declared and so they had to start imposing an exit
penalty (known as a “Market Valuation Reduction”) on people cashing in their
investment to stop them walking away with an unfair amount of the total value of the
fund. The industry regulator (the Financial Services Authority) also imposed a
change of rules meaning that investments had to be invested in lower risk assets, which
effectively meant that they had to reduce their stocks and share investments. Things
have steadied over the last year or so, but many companies are now in the position where,
when a strong recovery comes, they may miss out on it because of the conservative way in
which they have had to invest and the first thing they will want to do during a recovery
is to replenish their reserves rather than restore higher bonus payments. The
outlook for With Profits investment holders in the short to medium term is not bright But
whether it is worth paying an exit penalty to invest the money in areas likely to produce
higher returns is not a simple question to answer. Dependent upon your circumstances there
are pro’s and con’s to be taken into account and it really does make sense to
take advice from an independent financial adviser. For more information about
anything covered in this article, or any other aspect of financial planning, ask for a
free consultation with me, Pam Blyth. I can be contacted at financial futures ifa limited,
The Point, 1 Augusta Street, Sheringham, NR26 8LA. Telephone 01263 825037. financial
futures ifa limited are independent financial advisers authorised and regulated by the
Financial Services Authority. |
FIND OUT
ABOUT TWIN BINS
The roadshow will be held at Sheringham—Wednesday 22nd September 10am to 4pm at
Station Road Car Park and all members of the public are welcome to come along.
‘Slim Your Bin’ is an East Anglian campaign by local authorities to encourage
people to think about how much waste they produce, and how they can cut down the amount of
rubbish they throw away. |
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A major survey by the Campaign to Protect
Rural England on the state of market towns across the country, has given recognition to
Sheringham. Twenty market towns in England were highlighted as thriving places with a
local distinctiveness, character, and community spirit; and Sheringham was the pick from
Norfolk. The survey’s results showed that the vital assets of market towns are
often threatened by bland and uniform development, traffic congestion and an inflow of
commuters. Although no town was free from problems, Sheringham was recognised for
displaying many of the key ingredients for a successful market town. CPRE said that
the secrets of a successful market town are; being built on a good setting with a
well-conserved heritage, community spirit and civic pride; local markets, events and
festivals; and good planning.
The Norfolk branch of CPRE welcomed the results of the survey. James Frost, Campaigns and
Development Manager explains; ‘’This is great news for Sheringham. We are
pleased that the qualities of the town have been recognised in a national survey and that
the efforts of the community are being valued.’’ However the survey gave a
chilling warning to the future. One of the other main threats to English market towns that
the survey highlighted was the increasing profusion of out-of-town developments by major
supermarkets and retailers. There were many reports of local businesses being forced to
close and the life being sucked out from high streets across England. The survey was
conducted last year before the council gave approval to the new Tesco superstore on the
edge of Sheringham. As James Frost notes, ‘’CPRE Norfolk campaigned
vigorously against the Tesco application for the very reasons that this survey highlights.
Development by global retailers in local market towns can only take business away from
local people, undermine the local food chain and damage the unique character of a place
that has been built up over generations’’ ‘’As the survey shows,
success is built on a foundation of local people and local authorities acting wisely, so
that a town’s distinctiveness and attractiveness can be maintained, which in turn
enhances prosperity. We only hope that Sheringham doesn’t live to regret the district
council’s recent planning decisions and we will be campaigning thoroughly to ensure
that Tesco stick to the conditions of the approved scheme’’ For more information
on CPRE Norfolk’s work in Sheringham please contact CPRE Norfolk on 01603 814200. |
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