LV= annual bonuses cut
LV= is cutting annual bonuses on with profits by up to 4 percent as policy values fall an average of 1.4 percent. However £84.5m in bonuses will be added to LV= with-profits policies and the company was keen to stress their with-profit fund performed well, having much smaller falls in policy values compared with some unit-linked products.
The with-profits fund has made a cumulative investment return of 29 percent, with average annualised returns of 5.23 percent over the past five years. LV= Life and Pensions Director, John Perks, said “Long term policy payouts from LV= continue to outperform many other forms of comparable investments. Our average annualised investment return of 5.23 percent over the last five years is also a creditable achievement.”
Worse affected by bonus cuts are with-profits pension annuity (WPPA) Series 3 (2007 entry year) with a decrease from 2.8 percent to 1.4 percent. The with-profits Income Bond will be cut from 3.75 percent to 3 percent. “Exceptionally volatile investment markets in 2008 have inevitably impacted the performance of many funds, including short term with-profits returns. The average fall in the value of a maturing 25 year with-profits policy is 1.2 percent but thanks to smoothing this is much smaller than the fall in the actual value of the assets backing the policy. It also compares favourably with a fall of over 32 percent in the FTSE All Share Index over the same period” said John Perks. The announcement also claims LV= policyholders with maturing 25-year conventional with-profits life policies are at least 22.3 percent better off than similar policyholders with the major proprietary with-profits providers who have announced their bonus declarations so far this year.
The unconditional Mortgage Endowment Guarantee means all LV= with-profits mortgage endowment policies paid to full term are guaranteed to meet any mortgage amount covered by the policy. Figures released state a 20 year mortgage endowment policy with a projected return of £50,000 yields an actual of £64,963, a £14,963 surplus, while a 15 year policy has a surplus of £3,095.
The LV= with-profits fund had a 51.0 percent investment in equities, 16.0 percent in property, and 5.2 percent in venture funds, as of 31 December 2008. They say their relatively high holdings in equities and property are because they believe these assets are likely to produce better returns over the long term than fixed interest investments.
Commenting on their performance John Fell said “Our consistently strong performance in with-profits returns over many years shows the benefit of our financial strength as a mutual provider, with no corporate borrowings and no shareholders to pay.”
