£190bn ZOMBIE HORROR
... that’s the terrifying sum savers have stuck in ‘dead’ funds
MILLIONS of investors are being bled dry in failed with-profits funds that have been forced to close their doors to new business.
A Money Mail investigation has laid bare the misery facing 11 million policyholders who have almost £190billion festering in ‘zombie’ withprofits endowments, pensions and bonds.
They are so called because, despite giving appalling returns, they shuffle on and refuse to die.
The scandal has seen policyholders shunted around as funds have been closed and sold to ‘vulture’ companies that specialise in feeding off the bones of these dying investments.
Huge numbers of with-profits investments were sold in the Eighties and Nineties. But when the high charges and poor performance of these funds were exposed, the insurance companies closed them to new investors and left them to wither on the vine.
Investors led to believe that years of thrift would earn them a comfortable retirement — or pay off their mortgage — have been rocked by dismal investment performance, sky high charges and appalling customer service. This scandal has left: HOMEOWNERS who took endowments unable to repay their mortgages;
SAVERS who used withprofits pensions unable to retire;
PENSIONERS sold with-profits bonds with little or no income;
SAVERS trapped in failing funds by penalty charges; and
PENSIONERS stripped of thousands of pounds in retirement income when t hey buy an annuity.
While with-profits funds in general have disappointed, zombie funds have been the graveyard of many investors’ dreams.
Research by Money Mail reveals that some with-profit bonds taken out ten years ago are worth less than the sum put in.
And endowment and pension payouts on zombie funds are up to a third lower than on the better funds that are still open to new investors.
There are some 70 closed life offices, including Crusader, Phoenix, National Provident Life, Windsor Life, Abbey Life and Britannia Life.
Crusader, a closed fund now under Phoenix’s management, paid out just £23,653 to a 54-year-old who had saved £50 a month into an endowment for 25 years.
By comparison, Prudential, which runs one of the more solid funds still open to new investors, paid £12,181 more on a similar policy.
Equitable Life and London Life have both lost money for investors in their with-profit bonds over the past ten years, while Winterthur Life has managed just £51 profit on £10,000 invested ten years ago — the equivalent of £5 a year.
Even Scottish Provident’s £11,904 is only 1.7pc a year. Prudential turned in a more respectable £14,694.
Janet Walford, editor of financial magazine Money Management, has studied with-profits funds for more than 30 years. She says: ‘ These funds have a diabolical investment performance and have charges so high they are off the scale.
‘ When they were paying bonuses of 15 pc, t hese fir ms projected this would continue for the next 25 years.’ Laith Khalaf, of financial advisers Hargreaves Lansdown, adds: ‘These zombie funds are bleeding millions of investors dry.’ And long suffering savers are being ripped off until they go to the grave.
Those who roll over into an annuity from these zombie funds when they retire will lose out on t housands of pounds in pensions income.
Financial adviser Annuity Direct recently helped a saver with a £23,186 pension pot who was offered just £767.79 per year from zombie firm Windsor Life.
Instead, they got him £1,504.24 with Canada Life.
Bob Bullivant, from Annuity Direct, says: ‘ These savers have endured shocking returns for years only to be offered the final insult — poor annuity rates, which can pay an income that’s less than half they would get elsewhere.’