Standard Life raises with-profit withdrawal penalties

Published on Tuesday 17 March 2009 20:07

STANDARD Life has increased the penalties levied on investors ditching their with-profits policies prematurely.

The Edinburgh-based life and pensions giant said the reductions, which affect plans held by some 1.4 million with-profits pension and endowment policyholders, resulted from investment returns that have tumbled in recent months.

The exit penalties, which do not apply on maturity, are also known as market value reductions (MVRs). Several other insurers have also increased their charges to prevent investors cashing in prematurely from taking away more than their fair share of the assets.

Standard Life with-profits pension policyholders surrendering or transferring their investments before maturity now face average MVRs of 8.3 per cent, compared with 6.1 per cent previously. Endowment customers could be penalised an average 1.7 per cent, up from 0.7 per cent.

Individual charges depend on the type of plan and the degree of exposure to equities.

MVRs on other Standard Life with-profits products, such as bonds and stakeholder pensions, are set on a daily basis to reflect fluctuating asset values.

Margaret Flaherty, with-profits communications manager at Standard Life, said: "These changes have been made to ensure fair treatment for both customers choosing to leave with-profits and those choosing to remain.

"Today's changes have had no effect on payouts on maturity or at normal retirement age."

Flaherty added that further changes may be made depending on future investment performance, whether positive or negative.

But David Middleton, head of strategic marketing at Towry Law, claimed the increased penalties proved the shortcomings of with-profits investments.

"It is typical of a product sold on the basis of smoothed investment that does its job until markets fall and then hits you with an 8 per cent penalty if you want to leave," said Middleton.

"MVRs are yet another reason why with-profits are an inappropriate investment."