Sumary of Deal or no deal? How to decide when to take ‘with profits’ payout:
- After a This is Money reader fell foul of a bonus cut that drastically reduced his payout, we asked retirement expert Alan Higham of Fidelity Worldwide Investment to explain how these investments work and what holders should do with them now.
- There are millions of people who are saving for retirement or to pay off their mortgage using an investment known as ‘with profits’, writes Alan Higham.
- They were the most popular form of investments in the 1980-1990s among high-flying City folk and average Joes whose premiums were collected on pay-day every Friday evening.
- The idea is that the experts invest your money in a big pool and the profits from the investments are shared out over time so that your nest egg grows steadily.
- To encourage you to stay the course, these policies usually have a final bonus paid on maturity at retirement age or at the end of the policy term.
- With profits pension policies often give a guarantee that the nest egg can be turned into an income for life at retirement at set rates rather than being at the risk of the markets.
- In the 1990s they lost a long running court case in the House of Lords which disagreed with how the bonuses worked.
- General are still running these policies though very few are sold these days.