With Profits

Or without!

Depending on which company you've been investing your money with, many 'With Profits' Funds have been in the news of late, due to the cutting of their bonus rates, falling returns and increased penalties for early withdrawal.

'With Profits' Funds have in past won reputations as low-risk investments with potential tax advantages. 'With Profits' invest into Stocks, Shares, Property, Bonds, Gilts in a mixture of assets.

They are seen as a half way between, boring Deposit Accounts and the more adventurous stock market and equity investments. The Managers of these funds hold returns back in excellent years, and supplement returns in bad years. The effect is something called 'smoothing'.

Falling Returns

With the Stock Market in free fall, adverse publicity about the solvency of certain providers and the increase of exit penalties, people are beginning to question the security offered by these funds. With many 'With Profits' fund holders reliant on their performance to repay their Mortgage and provide their pensions, it's understandable that there is concern.

Endowments

Many people have received letters from their Endowment provider highlighting their present situation. They will have received a Green, Amber or Red letter. The problem is that many Green, are starting to turn Amber and many Amber, are changing colour to Red!

It may be a good idea for Endowment policy holders, to get a specific review of their policy. If they face a shortfall then they should consider changing part of their mortgage to Capital Repayment. This will insure that your liability will be less in the future.

If 'With Profit' Endowments do recover, any surplus in your policy will naturally be yours to keep.

Pensions

Many people are concerned about the value of their pension in the future. It's fair to say that if current returns are maintained, then these people are likely to be disappointed. They should remember that their Pension investment is for the long-term, and there is plenty of time for the markets and bonuses to recover.

As a hedge against purely being invested in one 'With Profits' Fund, they should look at redirecting some of their future contributions to other forms of investment. This could include 'Unit Linked' Funds, ISA's or indeed 'Property Funds'.

Investment Bonds

Investment Bonds offer excellent Tax Advantages, especially for Higher Rate Tax Payers. 5% of the fund can be withdrawn from the fund each year without any tax whatsoever. This is treated as a return of capital over 20 years. As the Basic Rate of tax has already been paid within the fund, any basic rate taxpayer will not have any further tax to pay on withdrawals.

Many 'With Profits' investors have been attracted in the past by "smooth" returns, relative security and tax advantages. They may be questioning their judgment in the present climate.

Many 'With Profits' Investment Bonds, have penalties for encashment and these should be looked at closely before making any decisions. Life Assurance Companies have been increasing these penalties, as they wish to discourage investors from taking this action.

You should remember that the Bonds are long-term investments and were designed to offer, Tax advantages over 20 years, along with the benefit of returns over this period. If you do not need the money at this moment in time, you should consider holding the investment until better times.

With Profits

Over the decades there have been many dips in the market and many recoveries. 'With Profits' are like any investment with an element of the assets in the Stock Market. They may not be as exposed as direct Stocks and Shares, but are not without risk. Those considering investing new monies would be best advised to look at alternatives at this moment in time. The ones who are already in, should stick it out!

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