Investors face a vicious circle of penalties if they withdraw their cash

Investors in with-profits funds have been warned of a "vicious circle" of bonus cuts and penalties should they choose to withdraw their money.

Advice site Fairinvestment.co.uk said that the recent stock market turmoil had hit the with-profits funds hard and they were cutting annual and terminal bonuses payments as well as, in some cases, imposing market value adjusters (MVAs), a type of one-off penalty imposed on people looking to take their money out of the funds. "Insurance companies seem to be taking a very short-term view. Although the rationale behind with-profits is that it is supposed to smooth the peaks and troughs of equity investment for investors over the long term, there never appears to be a good time for people to withdraw their money," said Sharon Bradley, a chartered financial planner at Fairinvestment.co.uk.

Last week, Standard Life became the latest insurer to announce a high MVA on its policies. Within the past fortnight, both Norwich Union and Friends Provident have taken similar steps to protect their funds from people withdrawing cash as well as cutting annual and terminal bonus rates. Millions of Britons have money invested in with-profit funds, and as bonus rates fall, more are likely to want to get their money out.