With Profit and 'Smoothing' -

[GSheehy]

Is there any long-term Irish evidence that this actuarial notion actually works, in the interest of the saver/investor/policyholder?

I received a With Profit bonus review during the week from one of the product providers and looking at the 25 payouts they're more reminicent of being invested in a bond fund for that period as opposed to benefiting from any stock market participation at all. Even allowing for the hefty initial and ongoing charges that were in vogue 25 years ago, the returns are poor enough.

I'd share the document but it has a Confidential: Ensure justifiable business need before sharing warning on it. No idea what the need for that is, other than embarrasment at the figures.

The other anomaly that's on it is that the pension payouts increased by 1.38% since 2025 but the savings payouts increased by 6.34%.

Penal Market Value Adjustments appear to be applied for the sole purpose of not allowing the policy holder to move the fund. Questionable whether that's in the interest of anyone other than the provider/owner/shareholders. 'I know you took your policy out in 1998 and the cumulative performace of (even) a bond fund over that period is circa 200%, but if you want to leave us we're going to apply a MVA of over 20% to the value of your fund.'

Of course, there may be other factors at play like diverting money to company owners and shareholders but, with the exception of a few policies that were with some of the less mainstream providers of these funds, the returns don't seem to smooth the good and the bad.

 

[Brendan Burgess]

Are you sure that it's an actuarial notion? I always assumed it was a salesman's notion to get people to buy products which sounded attractive but end up paying out huge costs.

I haven't looked at one for years but I got the impression that they worked out ok, only if you held them to maturity. Anyone who cashed early got a very poor return.

 

[ClubMan]

I haven't looked at one for years but I got the impression that they worked out ok, only if you held them to maturity.

That wasn't possible in the case of Equitable Life.

Key Post: Equitable Life with profits bond - what should I do

I realise that this is a subject that received a fair airing on your old server ... but rarely a week goes by when I don't see something in the press that increases my sense of foreboding about Equitable Life. The latest reports related to the likelihood of members voting against the 'compromise...

www.askaboutmoney.com

Key Post - With Profits Investments

With Profits Investments I have been extremely surprised to see posts discussing recommendations to buy With Profits investment bonds given the huge body of experience from the UK following the spectacular fall from grace of these contracts. I have therefore researched the following by way of...

www.askaboutmoney.com

 

[Fortune]

the pension payouts increased by 1.38% since 2025 but the savings payouts increased by 6.34%.

Do the pensions have a higher guaranteed increase in unit price? That would lead to a higher proportion invested on bonds and therefore lower returns.

 

[GSheehy]

If anyone wants to refresh their memory and understand the role of the actuaries in this then they could do worse that read this

No involvement of a Skinny Pete in the transaction at all, just Walter White types.

 

[GSheehy]

Do the pensions have a higher guaranteed increase in unit price? That would lead to a higher proportion invested on bonds and therefore lower returns.

Yes, but when I go back to the original link to the same information from 2022, 2023, 2024 & 2025 I get the current information only so it's hard to do any sort of meaningful comparison on asset allocation from year to year.

Annulalised return of a bond fund over 25 years to 2025 is 3.84%. Same bond fund for 25 years to 2026 is 3.39% so there may be some merit in what you say. Used a 0.75% AMC here.

Annualised return on the savings plan is 3.49% in 2026.

 

[MrEarl]

This briefly brought me back to the days of the mutual society, where profits were to ultimatrly be returned to the members...

With the exception of those who were fortunate enough to get decent share allocations, and options that they then exercised,when a demutualisation occurred, I think most policies holders got very poor overall returns, with most mutuals ultimatrly failing to keep their costs under control, while also rarely impressing with their investment returns.

I was fortunate enough to enjoy a few small benefits, due to carpetbagging, but was otherwise disappointed with the performance of the policies that I had.

My strong view now is that promises of long term benefits from "With Profits" policies, are not to be relied upon.

@ClubMan What happened with Equitable Life was a bit of an exception, so may not have been the best example. Take a look at Royal Liver, for a better example of a mutual that failed to deliver through its With Profits policies, for its members (aka policy holders)