Recovery hope for battered with-profits funds

By STEPHEN WOMACK
Updated:

More than ten million savers in with-profits funds will soon learn whether last year's stock market recovery helped their pensions, endowments and investment bonds.

Aviva, formerly Norwich Union, kicks off the with-profits bonus season on January 12.

It will announce how its funds performed during 2009 and what bonuses have been added to policies. Most of the other big-name insurers will make their declarations over the following six weeks.

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Hangover: Investors are still suffering from the drop in returns seen 10 years ago

With-profits funds hold a mix of assets including UK and foreign shares, corporate and Government bonds, and commercial property. Insurers set bonus rates each year to smooth returns.

After the gloom of 2008, which saw most with-profits funds lose ten to 20 per cent of their value, investors will be hoping for some positive news. Aviva, with about 2.3 million with-profits customers, will set the tone for the sector.

Last year was a good one for most assets. UK shares gained more than 30 per cent in 2009 while overseas equities returned more than 25 per cent.

Bonds also had a strong year, gaining more than 11 per cent. Most commercial property portfolios saw modest losses. But many insurers started 2009 with funds defensively invested, holding Government bonds and other fixed-interest assets. This means that with-profits funds will not have seen the full benefit of the equity bounce.

Tom McPhail, head of pensions research at adviser Hargreaves Lansdown, says: 'Don't expect to see the full value of these returns passed on in the form of generous bonuses. Insurers are still suffering the hangover of the reckless partying with investors' money ten years ago.'

Insurer NFU Mutual will soon set its bonus rates for its £3.2 billion with-profits funds, although customers will not be individually notified until they get their annual policy statements.

Standard Life will publish its bonus rates and performance on January 26, with Friends Provident and Zurich due to announce their figures before the end of the month.

Other key announcements include Scottish Widows, which is aiming to declare its bonus in the second week of February, Legal & General on February 18 and Prudential on February 26.

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