one is ploughing on. An inherited estate is money that built up in a with-profits fund over many years, which is above the amount expected to be needed to meet current and future policyholder commitments and other obligations such as expenses.
Norwich Union is still proceeding with its estimated £3.1 billion reattribution to relevant policyholders – apparently equivalent to about 70 per cent of the value of their inherited estate. The bonuses are due to be paid between December 2008 and December 2010. Norwich Union’s website states: “The inherited estate is needed to underpin the security of our funds against substantial falls in stock-market values, and to provide investment flexibility.”
Surely the inherited estate is required by Norwich Union at this time rather than being distributed to policyholders? Prudential certainly think so as they state,
“After an extensive assessment, we have concluded that maintaining the current operating model for the with-profits sub-fund is in the best long-term interest of both current and future policyholders and shareholders. As such, we have decided not to proceed with a reattribution.
The whole of the inherited estate is required, and it will remain as the working capital of Prudential’s with-profits sub-fund, helping to support continued superior investment performance, security and the ongoing financial strength of the fund for the benefit of current and future policyholders.”
The Prudential attitude seems more sensible in this environment. After all, they got things right (by luck or judgment?) last time by coming out of equities earlier than their competitors in 2001 – or, at least, “less wrong”.
For those still in with-profit funds, maybe now is time to review their values, penalties, bonuses etc. Their lack of transparency and make-up means less freedom for you and makes other alternatives worthy of consideration.
Trevor Law is a director with Montpelier Group (Europe) Ltd, the privately-owned independent financial advisers located at Barston near Solihull. E mail: TILaw@montpeliergroup.com