Hi, A family member has had around 15,000 capital in with-profit bonds with Eagle Star for nearly 5 years. She have been taking around 50 per month out, not eroding the capital.
How is it, that if she takes the money *out* now and takes it out of the poorly performing bond, that she only gets just over 13,000 back! Surely commission cannot be that hefty ?!
Also, based upon taking 50 per month over on the projection sheet supplied, in 3 years time or so, the capital that would be projected to be returned drops to just over 10,000. Can anyone explain this ?
Eagle Star clearly look like a massive loss-leader - would she be better off pulling out now, or hanging on ?
The commission rate should be in the original documentation, but 1000 wouldn't surprise me. Also it may well be that there is a Market Value Adjuster at the moment, basically a penalty for withdrawing early when markets are low.
Not when you also said "She have been taking around 50 per month out, not eroding the capital." Why do you think the 50 a month is not eroding the capital? In general, with-profits investments have a fixed value which goes up by an annual bonus each year, and if you withdraw only at the bonus rate indeed the capital should not go down. 600 a year on 15k is 4%, which is not that high, but might well still be above the current annual bonus rates. However, 600 a year for three years is 1800, which doesn't really explain the capital value dropping 3000! The projections will be made on some set of assumptions set out in the small print, which may or may not be realistic.
You need to look at the details. Up front commission is lost anyway, there's no use crying over spilt milk. If there's an MVA, which most funds have at the moment, you have to consider that it will not be applied at maturity, and may be removed in a year or two anyway if markets improve. Also with-profits funds usually have a terminal bonus at maturity which can be large. On the other side, the future for w/p funds in general doesn't look especially bright. Also, what would she do with the money? If she has personal loans at a high interest rate it may be worth cashing in to pay them off, effectively the return you get on that is equal to the interest rate paid, tax free, which could easily be over 20%; no investment is likely to match that without a lot of risk.
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