With profits bonds out of the rough

The latest survey by Investment, Life & Pensions Moneyfacts has revealed how rising payouts are finally rewarding investors who have stuck by their with profits bonds through the recent lean years.

The survey examined the latest with profits bond returns over various periods based on a single premium of £25K. It found that over the short term with profits bond payouts have continued to improve, with the average surrender values after two, three, four and five years all higher than at the corresponding point a year ago.

Particularly encouraging are the three and four year payouts, where the average with profits bond has now produced growth of 21.3% and 35.5% respectively. Returns drop slightly over five years, reflecting the more difficult investment conditions endured during this period. Nevertheless, the average five year bond is still showing a healthy 23.9% return

Although many with profits bondholders have been quick to jump ship, our latest survey reveals the extent to which those investors who have kept hold of their bonds are realising the benefits. For instance, an individual who invested £25K into an average with profits bond back in February 2002 and decided to surrender their policy three years later would have received just £25,655. However, by keeping the bond for a further two years it would now be worth £30,999, an increase of 20%.

Richard Eagling, Editor of Investment, Life & Pensions Moneyfacts said: “Even though the stock market has enjoyed a remarkable recovery since the dark days of 2000-2003, ‘smoothing’ has ensured that investment gains have trickled rather than flowed through to with profits investors. But after years of waiting patiently, those individuals who kept faith with their with profits bonds through the turbulent investment conditions at the start of the decade are finally reaping the rewards. Payouts are starting to rise, terminal bonuses are back on the menu whilst menacing market value reductions (MVRs) have all but disappeared. And for some of the more fortunate investors, even annual bonuses are beginning to climb.”