Money Help Desk: Our with-profits return is pathetic

Am I wrong to expect more from our joint life assurance policy?

WE HAD a joint life assurance with-profits policy with a well know mutual insurance company. We paid in approximately £42 for 10 years. This amounted to a total of £5,041.20. The policy matured and paid us £5,079.04 – a return of £37.84.

Now, I know that being a 'joint life' policy does bring down values, but not by how much. But I did feel that such a small return after 10 years was very poor. I don't know where the monies were invested, but we expected about 5% minimum based on all the bumf that came with the policy. Oh, and they gave all the usual "investments can go up as well as down" warnings.

I wrote complaining, but they just baffled me with science. What is your opinion? Should we have expected more?

DM, Dundee

Hargreaves Lansdown head of pension research Tom McPhail writes:

IF YOU take into account the effect of inflation on the contributions that you paid in the early years, then your money has actually gone down in value. On the plus side you have enjoyed the benefit of the life insurance for the past 10 years, though the cost of this would have been minimal and I'm sure that this isn't what you bought the policy for.

With-profits savings are generally a bad idea. Apart from the lucky ones whose policies matured in the late 1990s when payouts were inflated to unsustainable levels, investors have not been well served by them.

The bad news is you just have to accept that it was a poor investment; you would be better off now if you had simply put the money in the bank, and there is nothing you can now do about that. On the plus side, you haven't had to claim on the life insurance, and at least you have got your money back – in the present climate of economic uncertainty and financial meltdown it seems even that shouldn't be taken for granted!

How do I protect my investments?

I HAVE £360,000 in a tracker account with Saga Bank, and also £90,000 in a Web Account in HBOS. I use the interest from the money in Saga as part of my monthly overheads. I also have a substantial amount in bonds etc, which my financial person oversees.

What should I do to keep my money in Saga and HBOS safe?

AM

Moneyfacts savings expert Michelle Slade writes:

SAGA is covered under the Bank of Scotland banking licence, therefore if the bank was to fail you would only be eligible for compensation up to £50,000 and not the £450,000 you have invested. The Government has already stepped in to secure HBOS's finances, so your money should be safe. However, to ensure it is 100% safe you need to spread it around so you have no more than £50,000 with any one provider under the same banking licence.

Are my B&B shares worth nothing now?

I HELD 288 Bradford & Bingley shares. Do I assume that I will now no longer be a shareholder and that the shares are totally worthless?

Will any Government agency write to the former B&B shareholders to officially inform them of the current situation? Or should I just shred the share certificate?

BA

Seven Investment Management director Justin Urquhart Stewart writes:

THE management of Bungled & Badly has been a fiasco. The actual valuation of the business, I suspect, is going to be minimal.

However, it is still possible that there may be some residual value for shareholders but this may feel more like a gratuity than a significant payment. Hang on to the share certificate because you may get something, and if you don't, frame it as a reminder of how a bank shouldn't be run.


Are bust insurers' annuities secure?


IN THE event of an insurance company going bust what would happen to annuity funds it held? Should I be alarmed?

GR

Tom McPhail at Hargreaves Lansdown writes:

AS WE have discovered from the recent financial market turmoil, nothing is absolutely guaranteed – just ask the citizens of Iceland, who now find themselves saddled with enormous debts. However, annuity payments are definitely at the lower end of the risk spectrum.

Insurance companies invest the annuity purchase sum into corporate bonds and gilts, which are themselves relatively low risk investments. In this way, they can be reasonably confident of meeting their payment liabilities (ie your annuity income).

In addition, they are required to carry specific margins to cover their annuity business, so that even if they get their sums wrong, there is a decent margin for error. In the event that an insurance company fails then in the first instance the Financial Services Compensation Scheme would look to sell the company's annuity business on to another insurer.

Failing that, and in the event that the compensation scheme were invoked, annuities would be covered to the tune of 100% of the first £2,000 (by capital value rather than income) and 90% of the balance above that.

Two other points to consider which may bring some comfort: when Equitable Life got its sums so spectacularly wrong a few years ago, it was still able to carry on paying all its annuities.

Perhaps more importantly, I don't believe the Government would be willing to stand back and let people's pensions fail; in terms of confidence in the financial system and how it would look to a nervous public (and electorate), such an event would be catastrophic.