New research from Skandia has found that around £5bn of funds in With Profits Bonds could have a Market Value Reduction (MVR) free date this year.
They believe that as many as 500,000 investors in With Profits Bonds will reach the tenth anniversary of these investments during 2011.
Of these, around a third will find it possible to withdraw up to £5bn of funds without penalty.
A Market Value Reduction (MVR) is also sometimes referred to as a Market Value Adjustment (MVA). It is designed to ensure that, during turbulent investment market conditions, investors are not able to leave a With Profits fund with more than their fair share of the fund.
They are usually applied to With Profits Bonds when the stock market has fallen in value and the ‘smoothing’ mechanism of the With Profits fund means that investors would be able to receive a higher value. MVRs essentially revalue the holding in the With Profits fund to reduce the available surrender value.
All investors in With Profits Bond should find out if they have a MVR-free date coming up later this year.
This is an opportunity for With Profits investors to get out of a generally poorly performing investment product. The average annual bonus rate payable on With Profits funds at the moment is less than 1%, so lower than that available from a good savings account.
With Profits is great in theory but often lousy in practice. With some exceptions, many With Profits funds make it impossible to assess how much risk is being taken or what potential there is for investment rewards.
Whilst the arguments against continued investment in With Profits are strong, it is important to remember that there are many factors to consider before making a decision to surrender an investment. Where investors have made gains over the past decade in a With Profits Bond, they need to assess the tax position on surrender before making a decision.
It is also important to think carefully about how the money will be reinvested. Make sure that you have received independent financial advice and that you have a plan for reinvesting the money, because the product provider will target you to purchase another of their investment products when they see money leaving their With Profits fund.
Always confirm the MVR-free date in advance and check the requirements for surrender, including paperwork required and any cut-off dates for the receipt of the surrender instruction.
Do speak to us if you require advice on an old With Profits Bond.
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