THE traditional image of with profit pension funds producing a steady pattern of investment growth has been shattered by the latest results from the fifth annual Family Money/TIPS Ltd Personal Pension Survey which confirms the extent of the roller coaster ride that some 10 and 15 year with profit funds have experienced since 1992. The 1996 results reveal that while returns from 10 year with profit contracts are mainly continuing to fall, the pace of the fall has declined. But for some 15 year contracts, however, the fall in final values has been very dramatic, with a huge disparity in cash values between the best and worst performing funds.
With profits and unit linked pension fund values over 10 and 15 years are examined in the 1996 survey. For the first time, three with profit pension funds which have been in operation for 20 years are also scrutinised. The cash and percentage values expressed in the survey tables are the actual amounts an investor, age 60, who paid in £2,000 per year would have received on January 1st, 1996 as his 10, 15 or 20 year fund matured.
As in previous years, each participating company was invited to submit its most successful pension fund product. "They are Canada Life, Friends Provident, GRE Life, Hibernian Life, Irish Life, New Ireland, Norwich Union, Prudential Life, Scottish Provident and Standard Life. For the fifth year running, Eagle Star declined to participate.
Companies like Ark Life, Lifetime, Equitable Life and NZI cannot be included because their funds have not been operating for 10 years.
The tables on this page are abridged versions of those which appear in the 40 page survey report. They show the net (i.e. after all charges) per cent age yields and cash values of the 10, 15 and 20 year with profit funds as well as the net percentage yields and cash values of the 10 and 15 year unit linked funds. The tables also track these values since 1992, when the survey first began.
The report itself analyses the asset exposure of mixed funds, the impact of inflation on values, the importance of selecting a high performing fund and of receiving personalised investment advice. A new chapter is devoted to the effect of charges on the pension funds included in this survey.
TEN year with profit/unitised with profit pension fund results are still in decline, but at a slower rate than previous years, this observation is one of the main conclusions of the 1996 Family Money/TIPS Ltd. Personal Pension Survey (see Table 1). Ten year unit linked values (see Table 1A) have seen some improvement on 1995 though returns remain in single digits, testimony to falling inflation, and lower nominal returns from markets," according to the survey author, Mr Eddie Hobbs, managing director of TIPS (Taylor Integrated Planning Services).
The best 10 year, with profit/unitised with profit result in the 1996 survey was achieved by GRE Life with an annual, net yield of 14.06 per cent and a cash value of £44,256 on a total investment of £20,000 (i.e. £2,000 per year for 10 years). At the bottom of the with profit ranking is Standard Life with a 10 year net return of 8.46 per cent and a cash value of £32,123, a difference of over £12,000.
As the tables illustrate, Standard Life has seen the most significant drop in values over the five years with payouts reduced by over £16,000 since 1992. Scottish Provident remains the second ranked with profit company with a net yield of 12 per cent and a cash payout of £39,323, but its values are also down quite significantly on last years figures.
Expressing concern about the continuing high payouts by companies like GRE and Scottish Provident, Mr Hobbs notes that Scottish Provident UK's Standard & Poors rating has recently been downgraded from excellent to good, partly because the company has been paying more on its with profit policies than it has been earning from underlying in vestments.
The story is quite different for unit linked pension fund returns which are, for the most part, showing some recovery on last year's values. (Ten year returns are only available since 1994). Standard Life takes the number one position in 1996 with a net percentage yield of 9.73 per cent and a cash maturity value of £34,524. By comparison, the worst performing 10 year fund from Irish Progressive amounted to a percentage net yield of just 7. 11 per cent and a cash value of £29,763.
This year's results are good news for Irish Life customers, who make up the biggest single group of pension fund investors. Though still in fifth place out of six unit linked companies, the net yield is up from 7.05 per cent and a cash return of £29,653 in 1995 to a net yield of 8.04 per cent and a cash value of £31,361 in 1996.
When the two categories of pension funds are examined together, a very wide performance gulf emerges the person who invested their £20,000 in GRE Life's with profit pension fund earned £14,493 more over the same 10 years than the person investing in Irish Progressive's unit linked fund. One of the reasons for the wide disparity in values is suggested in a new chapter in the 1996 pension survey in which the author analyses the effect of charges on unit linked fund maturity values. On the 10 year contract Mr Hobbs found that Irish Progressive, with a 10 year net return of £29,763, had the highest charges, amounting to £6,311 that is a reduction in yield (RIY) of 3.38 per cent. Had such costs not occurred, investors would have received £36,074.
New Ireland had the next highest set of charges, amounting to £5,613 (2.71 per cent RIY) followed by Standard Life with charges of £5,060 (2.39 per cent RIY). New Ireland's fund would have been worth £39,056 rather than the reported figure of £33,443 had it not been for those charge Standard Life's fund was reduced to £34,525 from a pre-charge value of £39,585. The company with the lowest set of charges was Canada Life at £3,838 (1.92 per cent RIY), reducing its net fund value to £33,179 from a pre charge level of £37,017.
