# Standard Life MVA



## KMcD (30 Sep 2002)

Standard Life cuts bonus and imposes MVR

Standard Life is cutting terminal bonus by ten per cent and
imposing a market value adjuster of 10 per cent.

Standard says it has been forced to take this action following
recent stockmarket falls and some recent increases in
withdrawals. 

Standard Life group finance director John Hylands says: "We
have taken this action to ensure all our policyholders are
treated fairly, both those who withdraw their money from the
with-profits fund and those who remain fully invested. This
decision has been taken in response to recent investment
market conditions, not as the result of any deterioration in the
company's financial position which remains strong and secure."

Source : MoneyMarketing

This is in respect of UK business, so it is only a matter of time before it applies here.


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## KMcD (30 Sep 2002)

*MVA*

BTW

IMHO - We can thank the media frenzy for this action.


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## Bedlam (30 Sep 2002)

*MVA*

God Bless the Media


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## Noel (30 Sep 2002)

*MVA*

MVA, So bloody what!

Noel


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## clayfoot (30 Sep 2002)

*SL*

This does apply in Ireland as well as the UK.


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## Paster (30 Sep 2002)

*Liars*

SL says <!--EZCODE QUOTE START--><blockquote>*Quote:*<hr> <!--EZCODE ITALIC START-->_ "We
have taken this action to ensure all our policyholders are
treated fairly, both those who withdraw their money from the with-profits fund and those who remain fully invested. "_<!--EZCODE ITALIC END--><hr></blockquote><!--EZCODE QUOTE END-->Maybe not quite a lie but definitely economical with the truth.  SL has <!--EZCODE BOLD START-->* three*<!--EZCODE BOLD END--> classes of policyholders, those who withdraw, those who remain AND <!--EZCODE BOLD START-->* those who are joining up<!--EZCODE BOLD START--> .  Yes, the MVA is helping to treat fairly the first two categories but the last, the newcomers, are being sold a pup.  Why are they not allowed in at 10% discount if those who are leaving are suffering 10% penalty?

Why, Why, Why in all this passion for fairness do companies (with the honourable exception of CL) not tell it as it is for potential new customers? Answers on a postcard<!--EZCODE BOLD END-->*<!--EZCODE BOLD END-->


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## S (30 Sep 2002)

*MVA*

Paster, dont follow you at all at all.

If I was a long term investor why should I be worried about an MVA? or in SL case a UPA.

Also why do you consider CL's action honerable?  

S


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## Paster (30 Sep 2002)

*The BH*

High S, nothing at all wrong with a MVA or even a UPA.  About time SL imposed one instead of all this macho "it doesn't apply to us" millarkey.  Put if they are belatedly being so fair with existing policyholders why not also be transparent with potential newcomers and admit that the BH means it is very unlikley they will get a fair return on their investments, even over the long term.  The answer is of course that it takes courage to turn away new business, a courage which so far has only been forthcoming form the honourable folk at CL.


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## Raul (30 Sep 2002)

*Symetry*

Agree totally with Paster - taking money in from new investors at a price well in excess of that at which you will let people leave cannot be other than a bad deal for new investors.

Even as a long term investor, the idea of buying into an accumulated deficit of 10%( & the real figure is almost certainly 20%+) is simply not bright.The scale of the deficit must be an issue even to long term investors.

Each time I see the SL fund being advertised(very clever btw),I wonder how many more 'innocents' are being 'suckered in'.

I am reminded of a very similar discussion which took place on AAM some time ago in a thread relating to Irish Life's Secure Performance fund.With the tax deadline coming up at end October, how many thousands of people (& millions of Euro) will go into a Fund which is somewhere close to E100m in the red ?

These investors will get a rude awakening when the bonus for next year( & probably the next number of years) comes in just above zero. 

As an aside,this is the default option on their Personal Pension product(marketed as 'Navigator').

The defence that this is only open to regular contributions starts to ring hollow when the deficits get so large.The ostrich syndrome is alive & well ( particularly with advisers) but the day of reckoning is coming......


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## S (1 Oct 2002)

*MVA*

Where have you been the past 170 years?

CLs PR of their WP fund closure was a complete disaster.  If the message you received elevates them to 'honourable' status then you have have just become part of this damage limitation exercise.

S


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## Ross (1 Oct 2002)

*MVA*

S
Please explain why you feel Canada Life's pr was a complete disaster ?
Ross


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## S (1 Oct 2002)

*MVA*

You'll get the AAM 'Split Persoinality' award soon. 

S


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## Sir Galahad (2 Oct 2002)

*Odd*

With all of the bigger rip off's going on in financial services, like retail banking margins, a set up on IFSRA, lack of disclosure enforcement, lack of disclosure rights on top ups, unregulated activities, over-blown drawdowns from unsmoothed funds that haven't been reviewed, leading to litigation etc etc, why is it that with profit funds applying MVR's in a severe bear market, is the principle heat on AAM judging from this and other threads?

While it's a worthy debate, isn't it the case that what we're really seeing is a debate between UL and WP going back into the 1970's. That really the WP critics couldn't give a stuff about the consumer, that it's merely a badge of convenience to go competitor bashing?

Because if there is a genuine interest in the consumer it certainly isn't registering in much more important other matters that count. This debate smells like a commercial one. If so at least let's be honest about the motivation, and stop shedding crocodile tears.


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## King Arthur (2 Oct 2002)

*Reality Check*

Dear, Dear, Sir Galahad, so naive.  Of course, nobody but nobody has the consumers' interests at heart above their own.

That is not the point.  In today's conditions,  WPBs are a clear rip off of new consumers.  It is not down to moral forces to expose this rip off - that is not the nature of our society.  Instead it is down to naked competitive forces to present the truth. What's wrong with that?

The fact that anti Fianna Fail interests are doing there damnest to exploit the core rottenness within that organisation does not negate their arguments?  Similarly the fact that the main exposees of the rottenness within the state of With Profits may have an axe to grind does not of itself negate their arguments.

The fact that CL itself has come out with its hands up clearly underpins the arguments of the anti WP brigade, no matter how self interested their motives.


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## Sumatra (2 Oct 2002)

*present the truth*

The terms of a SL policy allow them to impose an MVA.  SL still have stg£2 billion in the bag. The terms of a CL policy allow them to 'close' their fund (why not to pensions I ask in passing?). Its not a point of honour but a few contributors to AAM are product providers delighted to have a stab - how much more blatently obvious could this situation be! (Trinity v UCD!)

There is no difference between whats happening to WP funds and equity markets in general and surely we cannot expect "competitive forces" to present the truth! 

Sumatra


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## MaunsellsRoad (10 Oct 2002)

*Diamonds in the Rough*

I am struggling a little with why are people insisting that there is a black hole in with profits funds? And why new investors should get a discount on entry?

With Profits has been explained to me along the following lines:-

Policyholder A - invested in 1998, annual bonuses added = 25%, underlying fund performance is -10% (figures made up and not crucial to the argument). This policyholder should expect lower annual bonuses going forward certainly, as to do otherwise would be imprudent on behalf of the insurance company. This policyholder is likely however to have significantly outperformed an equivalent policyholder invested in unit-linked funds - even with a UPA / MVA. This policyholder will likely suffer from limited growth potential going forward as the company manages back bonuses. ALL OF THIS I CAN UNDERSTAND (and seems reasonable)!

Policyholder B - invests in 2002. The company may declare lower bonuses into the future (conscious of their liabilities from Policyholder A). 

This of itself is not a major issue. Where the underlying asset performance warrants it, companies can pay 'terminal bonus' to policyholder B to bring the amount in line with the amount that they want to pay out. Maybe not transparent, but an actuary looks after the policyholder’s interests, and the Irish Independent today (10th October) shows that exiting policyholders are doing fine.

I do agree that there may be a potential problem, but commentators appear to be content to simply use one large tarred brush. 

Life assurance companies will encounter problems where either (a) they can't manage back the payouts for policyholder A quickly enough and/or guarantees kick in (Equitable are an extreme example as they misjudged the GAO problem), or (b) can't get capital to finance the short term overpayment to Policyholder A type with profits policies (some overpayment is expected).

So avoid the sector?

No, although IMHO there are concerns that some of the key participants need to address (and have not done so to my satisfaction to date).

To take the two main players:- 

Hibernian wrote huge volumes of WPB business during the highs of the stockmarket (late 90’s), with high levels of guarantees (no MVA at maturity) and an inflated year 1 bonus. They would make me nervous due to the potential magnitude of the problem within their fund.

Standard have persisted with a high equity backing ratio, have given endowment mortgage promises and are a mutual - no access to equity markets (albeit they have can and have issued debt). The AAA rating is a definite consolation however, although the S&P rating for WorldCom and Enron prior to their recent falls from grace has been noted elsewhere on this site. I'm no longer sure that a demutualisation 'punt' would be enough for me to recommend them - not sure any more how much there is to give away!

I will continue to recommend with profit bonds for clients looking for stockmarket exposure with a level of guarantee. There are plenty of providers - challenge is to identify the diamonds in the rough!

And then look forward to the Indo survey in 2022.


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## Paster (10 Oct 2002)

*With Profits Black Hole*

I absolutely agree with <!--EZCODE ITALIC START-->_ Mauns'_<!--EZCODE ITALIC END--> diagnosis of the situ though not her prognosis.

Policyholder A is 35% underwater.

This is only an issue for Policyholder B if bonus reductions do not fill in this hole before A cashes in.

Most of these funds are now more than 50% invested in gilts earning 4.5%.  The equity portion might be expected to earn 7% if they ever find their correct starting point.  So let's say an overall expected return of 5.5% looking forward.  Knock off charges and we're down to say 4% to cover bonuses.  Let's say bonuses are cut to 3%.  That means the BH will be filled in at an expected rate of 1% per annum.

Policyholder A got in in 1998, maybe 3 to 6 years before she has a Guarantee date.  The BH will have reduced from 35% to around 30%.

But, I hear you say, Policyholder A probably won't wait till the Guarantee Date.  Very true.  On "premature" encashment there will be an MVA of 10% or 15%.  So the premature escapees will leave behind a BH of say 20% to 25%.

No matter which way you look at this, Policyholder A is going to leave behind a very substantial BH even if stockmarkets rebound, because the funds have already run for cover.

Who will inherit this BH?  Policyholder B of course.  The very worst situation is where there are lots and lots of Policyholders A and Policyholders B dry up as the BH burden will then be hugely magnified.

As the Indo survey points out the returns on 2001 matring WP policies are that good because early exits were being screwed.  <!--EZCODE BOLD START-->* The exact opposite syndrome is now unfolding*<!--EZCODE BOLD END-->  A very substantial body of policyholders will get much more than they earned.  It is today's new customer who will shoulder this burden.

<!--EZCODE ITALIC START-->_ Mauns'_<!--EZCODE ITALIC END--> posting, which I take to be in good faith and clearly very well informed, highlights how insidious this deception is.  Clearly <!--EZCODE ITALIC START-->_ Mauns_<!--EZCODE ITALIC END--> believes that there is enough flexibility within the Terminal Bonus and that the MVAs are adequate enough to ensure that potential new customers can, by and large, expect to receive a fair return on their assets.

When is the Regulator goin' to make a public statement that blows all this actuarial mumbo jumbo and misrepresentation to smithereens.  This would serve us all a lot better than showing yellow cards about Headline First Year bonus rates, which are a mere bagatelle when compared to the cover up of the <!--EZCODE BOLD START-->* Black Hole*<!--EZCODE BOLD END-->


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## MaunsellsRoad (10 Oct 2002)

*WP BH*

Some observations:-

It is accepted that the nature of With Profits is such that some willl leave with more than they deserve, and some will leave with less. This I accept as a symptom of smoothing of returns.

Actuaries have a responsibility to manage the business a la the application of a UPA / MVA; asset allocation; level of business written; level of guarantees offered. I expect them to act in the best interests of policyholders I place with any individual company.

Eagle Star for example (and I have no connection - merely an example to demonstrate my point) - defensive asset allocation, low level of guarantees (on single premiums). I'd query the inflated annual bonus, but I'm reasonably happy with the broad outline of the management of this fund.

All I'm saying is that it is possible to construct a doomsday scenario, but that is to close one's mind to with profits as a concept. I don't believe that all comapnies are in the same boat / have similarly sized black holes. Some companies manage with profits more appropriately than others. Thats all.

On terminal bonus flexibility, what I hoped to have communicated was that all else being equal, lower annual bonuses implies higher terminal bonus. Lower annual bonuses does not of itself mean that returns will be worse (except in the very short term).


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## raul (11 Oct 2002)

*sense*

Paster's latest posting describes what is happening with great clarity.From being quite adamant in his/her secondlast posting Mauns' last fails to respond in any substantive way.

I believe Mauns(though clearly intelligent & well-informed) is sufferring from an inability to accept facts which call into question one's past judgements/actions - I gather the professional term is Cognitive Dissonance.

Reality calling - new money going into these funds is buying a pup & advising clients to do so is,to be charitable about it, highly questionable.


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## Dumbo (14 Oct 2002)

*Am I missing sumfin'*

There seems to be a general consensus, whether one is pro or anti, that an example of existing WP policyholders being say 35% underwater is not unreasonable.  It is also a matter of fact that most WP funds are now less than 50% in equities, the balance in bonds.  

Hey, it would take a 100% rebound in equities in a short space of time to close this gap.  But wait, a sudden surge of 100% in equities so that the nightmare is over, what does Mr Greenspan think of this?  One thing's for sure you can forget all this 1.75% interest rate mullarkey.  Interest rates will be spiked sharply upwards. Anybody following the drift? <!--EZCODE ITALIC START-->_ Mauns_<!--EZCODE ITALIC END-->?  You spotted it, the bond portion of the funds will have fallen by nearly 30% substantially negating the equity rebound.

The situation is absolutely hopeless and everybody involved in the inner workings of these black boxes knows it.


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## Karen Mc (18 Oct 2002)

*Titans clash over with-profits*

Standard Life's head of with-profits marketing David Hare will clash with Skandia co-founder Paul Bradshaw over the future of with-profits in the first of a series of financial services debates to be held on Wednesday, October 30.

The debates, hosted jointly by Money Marketing and the Financial Services Forum, will take place in front of an audience of IFAs and financial services professionals at Bloomberg's offices in London. 

Hare will propose the motion that with-profits remains a good option for the 21st Century investor, with Bradshaw opposing.<!--EZCODE BOLD START-->*  For details about attending, contact Marie Armoogum on 00 44 20
7943 8040.*<!--EZCODE BOLD END-->

Source : MoneyMarketing


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## ClubMan (18 Oct 2002)

*Re: Titans clash over with-profits*

<!--EZCODE BOLD START-->* ...David Hare will clash with Skandia co-founder Paul Bradshaw...*<!--EZCODE BOLD END-->

Obviously the world of personal finance isn't immune to sporting style hyperbole! :rolleyes


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## aidanmcloughlin (20 Oct 2002)

*With Profit Funds*

Whether you are for against with profit funds I am sure all woud agree that there is a degree of disquiet among advisors and members of the public in relation to with profit funds.

 It is noticeable that much of the debate is being conducted using theoretical facts and figures. 

Surely it is appropriate to insist that industry regulators would involve themselves in this matter? If there isnt a problem it is wrong that consumers are being turned of these products by such speculation. If there is a problem it is wrong that the regulator would sit on its hands and do nothing to inform the unwary. 

Much debate in the Insurance industry in recent years has focussed on disclosure - the consumers right to information. Whilst this has traditionally focussed on intermediary remuneration surely the same principle applies to regulators. If you have information that is relevant to the consumer why not disclose? If you dont have such information - are you properly regulating?

If regulation is ever to be seen to have a consumer focus surely now is the time to act?

Regards,

Aidan


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## Karen mc Dougal (21 Nov 2002)

*SLAC Equity Holding*

Standard slashes equity holdings
John Stones

Standard Life has dramatically changed the shape of its with-profits fund, according to its annual life and pension investment report. The equity-backing ratio of the £35bn fund has been cut from
71 per cent in September 2001 to around 53 per cent. 

The company says the current growth of units in its with-profits fund is 4 per cent a year, a fall of 0.5 per cent on the previous year. The top 10 holdings in the with-profits fund in order of size
are: BP Amoco, Glaxo SmithKline, Vodafone, HSBC, Royal Bank of Scotland, Shell, Treasury bonds, AstraZeneca, Lloyds TSB and Barclays. 

At October 1, the asset allocation of the with-profits fund saw cash at 15 per cent - up from 1.6 per cent in 2001 - and UK equities at 41.7 per cent, down from 56.6 per cent. The ringfenced stakeholder with-profits fund largely mirrors the make-up of the main fund but, as it is relatively new, has not been able to buy property fast enough to match the weighting in the main fund. 

Director of corporate affairs Gordon Arthur says: "We felt it appropriate to reduce the equity backing so we were still overweight but not so that is was not such a big position. It brings us more into line with our peer group."

Source : Money Marketing UK


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## DOGHEADIUS (20 Jan 2003)

*SL MVA*

STANDARD LIFE NEWS

Announcement today that SL have increased the MVA up to 20%.

Im guessing at another skim of our (member's) terminal bonuses come Feb 2003.

dogheadius


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## Galwayman (22 Jan 2003)

*Standard Life With Profit Fund*

Does anyone know whether the new higher mva penalty applies in Ireland? I've heard conflicting reports. Also has the Irish fund reduced its equities like the UK fund?

The Irish Independent recently carried a really bad review of Standard Life. Do policyholders have anything to worry about?


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## gwangwangwan (25 Jan 2003)

*standard life endowments*

Galwayman

Check out the Motley Fool board - pretty depressing for those of us with endowments. I wish I'd surrendered last year - would have got about 10K more. Terminal bonuses will be cut by a min of 10% in February. I've got 8 years to go and I just dont think the markets will recover quickly enough to pay off mortgage so I will probably surrender soon..


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## Bedlam (30 Jan 2003)

*Standard life*

Todays Financial Times 

Standard Life have lost their Standard & Poors 
Triple A Rating.
This was always one of their strong selling points and it is a pity to see them loosing it.


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## moonlight (7 Feb 2003)

*cashing in your policy*

Galwayman - eight years to go and you're thinking of cashing in - I wouldn't do it if I were you.  Hang on until the end, it should be a last resort to cash in.

Even if returns are lower in eight years, I doubt very much that there will be much around to beat the returns you will make on your endowment.


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## MoonLight (7 Feb 2003)

*Re: cashing in your policy*

apologies

that last posting should have been directed to gwangwangwan and not galwayman.


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## garrettod (11 Feb 2003)

*...*

Hi,

This thread may be of interest to members of Standard Life  




regards

G>


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## gwangwangwan (18 Mar 2003)

*surrender*

Moonlight

We will definitely be surrendering our SL policy this week while we still have some of the 1990's boom years profits included. Standard Life will be cutting (terminal)bonuses  again, probably by 10% in May. Until recently, our endowment was doing well and I would have agreed with you to stay the course. However, I now think it extremely unlikely that 8 years is long enough to pay off the amount we orginally needed for the mortgage. There is also a strong likelyhood that terminal bonuses will be scrapped altogether if current market conditions persist for much longer. S. Life bet the farm on the stock market and has lost big time - it just doesnt have the reserves left for us endowment suckers.

gwangwangwan


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## Dandy Fop (27 Mar 2003)

*Standard Life Directors Pay*

Chief executive Iain Lumsden was paid £743,000 last year. This includes salary of £467,000, £16,000 benefits including car, £136,000 performance-related bonus and £124,000 as the cashable part of a long-term incentive. He has accrued a further £402,000 longterm incentive and an upgraded pension entitlement of £301,000 a year. 

Deputy chief executive Sandy Crombie was paid a total of £586,000, including a performance-related bonus of £122,000.


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