As Standard Life pointed out yesterday, even after the latest bonus cuts, the payout on a 25-year endowment involving premiums of pounds 15,000 would still be pounds 51,220. That equates to an annualised return of 8.7 per cent, which is not bad even if you would have done better by simply tracking the stock market. Yet this is 18 per cent less than you would have got had your policy matured a year ago. Indeed, at the present rate of decline in bonuses, it will be less than five years before the annualised rate of return sinks to little more than the rate of inflation.
Those who took out a policy 25 years ago are still doing quite well. Those who took one out more recently will do appallingly on present projections. Once Standard Life floats on the stock market, there won't be even the prospect of a windfall to look forward to.
These days, the big life companies sell very little in the way of conventional with-profits business. With-profits has been too discredited by the sins of past. Instead the industry concentrates on more transparent, easier to understand products such as unit linked bonds. Yet the approach is still essentially commission, rather than customer driven and it may be no guarantee against future mis-selling.
The savings industry remains light years away from being the customer- orientated dynamo it ought to be. Indeed there seems to be a case of almost total market failure here. The only thing that seems guaranteed to make matters even worse are the Sandler proposals for a prescriptive, simplified suite of savings products, as dictated by the Government. You'd do better literally sticking your money under the mattress than investing in one of these.