Trapped savers deserve a lifeline

By JAMES HOPEGOOD
Updated: 18:00 EST, 1 April 2004

MORE than 2.5 million savers are saddled with dud savings plans which are not receiving a penny in growth.

They are not getting annual bonuses added to the with-profits endowments, pensions and bonds they are relying on to pay off their mortgages or fund their retirements.

But they cannot rescue their money because they are trapped by early exit penalties that will slash up to 20% off their savings if they take them elsewhere.

Money Mail's Forgotten Funds campaign is calling for savers trapped in these with-profits funds to be allowed out at no penalty.

In many cases, this desperate state of affairs has been dragging on for two years. This is the case for 239,000 with-profits savers at Winterthur Life who haven't had an annual bonus added to their savings since 2002.

Winterthur Life sits alongside household names such as Scottish Widows, NPI, Pearl, Scottish Mutual, Scottish Provident, Abbey National Life, Alba Life, Norwich Union, Eagle Star and Britannic Assurance, on the list of companies currently giving no annual bonuses to some or all of their with-profits savers.

With-profits policies are supposed to pay regular annual bonuses which should not be taken away, and then a terminal bonus reflecting investment growth over the whole period of the plan is paid at the end. The process is known as 'smoothing' and is meant to make sure people receive a fair share of the investment without being exposed to sudden lurches in the stock market.

Their decision to starve these plans of any investment growth spells disaster for pension and endowment savers who took out with-profits plans and who expected to see their nest eggs grow steadily over the years.

And it poses a particularly nasty problem for income-seekers using with-profits bonds. They must either stop taking an income or eat into their original savings.

Insurers use recent stock market turmoil as the excuse for not paying annual bonuses.

Yet one insurer, Britannic, managed to restart adding annual bonuses for most savers earlier this year, while Equitable Life is also adding annual bonuses, although they are not currently guaranteed.

To make matters worse, many shorter term with-profits plans aren't getting a terminal bonus either, so the money in them is shrinking as inflation erodes its real value.

Many endowment and pension customers affected will still be paying money into their plans through monthly savings schemes.

Winterthur's behaviour is typical. The company - which used to be called Provident Life and also owns Colonial Mutual - is blaming poor stock market returns in recent years for plunging savers into their current dire straits.

A spokesman for the company, which is owned by financial giant Credit Suisse, says: 'Although investment returns have increased during 2003, the effect of the poor performance of the stock market over the past few years means that several years of increased performance would be needed to restore regular bonus rates.'

Only a handful of savers who took out Winterthur with-profits plans after June 2002 are getting annual bonuses added to their money.

They received no annual bonus for the last two years of their plan and no terminal bonus at the end. The Traffords took out the £287-a-month with-profits plan in March 1994 as a home for the money they were saving because they didn't have a mortgage.

Civil servant Mr Trafford, 55, from Middlesex, says: 'I made the assumption that I had no annual bonus for the last couple of years to preserve the terminal bonus. But we didn't even get that. It is a total con. We would have been better off putting our money in the bank.'

A spokesman for Winterthur Life, which now owns Colonial, says: 'While it [their payout] is not a great return, in the recent scheme of things it is not an unexpected one either.'