Britain's worst with-profits providers

Ten million savers have a stake in Britain's £300 billion with-profits industry -- but some giant providers stand accused of 'getting it completely wrong', says Malcolm Wheatley.

Over the past few years, with-profits policies have had an awful press. And now, it's the turn of with-profits providers themselves to come under the cosh, as a survey pulls no punches in naming and shaming Britain's worst with-profits providers.

Some ten million of us have a with-profits plan of some sort, most often in the form of an endowment mortgage or pension plan. Sold by commission-hungry IFAs as well as directly by major insurance companies, with-profits policies have a well-earned reputation for murky charges, poor performance and high costs.

And although tighter regulation has clamped down on with-profits sales, they're still -- worryingly -- being marketed today.

Lack of transparency

Released last week, research from exitwith-profits.co.uk claims to be the biggest and most in-depth investigation ever into the UK with-profits market. The nine-month investigation included interviews with financial advisers and plan-holders, analysis of company statements and product literature, and conversations with product providers.

Some providers -- and some with-profits policies -- are very good, it concluded. But just as many were frankly appalling. And worse, the publicly-available information in the marketplace doesn't make it easy to distinguish between the two.

"We were shocked by the intransigence of the product providers in supplying even basic product information -- and when they did it was often presented in an incredibly complex way which was difficult even for a specialist to understand," says Matthew Morris, a director of exitwith-profits.co.uk. "The companies hide behind the transparency required by the FSA, forgetting that they also need to make their plans transparent for their customers."

The good, the bad and ugly

With-profits providers were ranked across five 5 different fields -- financial strength, transparency, features, past performance and future prospects -- to produce a 'report card' which allows policyholders to see at a glance the overall position of a company's with-profits policies.

Four providers were classed as 'getting it right': LV=, Wesleyan, Aviva and Prudential. Six, on the other hand, were regarded as 'getting it completely wrong': Sun Life of Canada, Zurich Life, Canada Life, MGM, Pearl Group, and Equitable Life.

The rest of the market fell between 'room for improvement' (nine providers) and 'in need of serious attention' (seven providers). Here's the full table:

What to do next?

If your with-profits providers have been given a clean-ish bill of health, well done. You're either lucky, or have chosen well. But if you find that you've a with-profits policy with a provider with a less-than-ideal rating, don't automatically pull the plug.

For a start, individual circumstances make a huge difference as to the right course of action. Anyone with a guarantee maturing in two years -- even with a 'bad' company -- will for instance have good reason to consider staying put.

Then there's the question of the 'market value adjustment' (MVA) mechanisms imposed by firms to prevent investors taking their money out. Sometimes called 'market value reductions' (MVRs) these can range from around 5% to as high as 15%.

If you've a policy maturing in (say) three years time, it may be better to hang on rather than sacrifice 10% of your savings just to get out.

Window of opportunity

The good news is that MVAs are starting to come down, now that the worst of the credit crunch and associated stock market collapse is (hopefully) behind us.

Laith Khalaf, a pension analyst at Hargreaves Lansdown, points out that Friends Provident have now removed MVAs from almost all of their with-profits funds, following the rise in markets over the last six months.

"Many investors in other insurance companies' with-profits funds may also find that their MVAs have been reduced, or in some cases eliminated," he says. "The reduction and removal of MVRs means that those investors who were thinking about getting out of a with-profits fund might find now to be a good time to do so, particularly when you consider that if markets dip again, MVAs may consequently rise."

Read the small print first, in other words, but don't assume that you're locked into a poorly-performing with-profits policy for good.

If your endowment has let you down and you're not sure what to do, remember: you're not alone. If you want advice, why not ask other lovemoney.com readers what you should do using our Q&A tool?