Anyone fortunate to have retired in the first couple of months of 1998 will have enjoyed some of the best pension fund maturity values in recent years. As the seventh annual Pension Survey demonstrates, the remarkable stock market bull run has had a very positive effect on nearly all 10-, 15- and 20-year with-profit and unit-linked pension fund results. It is a picture unlikely to be repeated for next year's pensioners. The Pension Survey, which is produced exclusively for Family Money readers by the independent financial adviser, Financial Development and Management Ltd, continues to be the only annual survey which produces real percentage and cash returns available from up to a dozen participating companies which have had funds operating for either 10, 15 or 20 years.
All annual percentage returns and cash values have been provided by the participating companies' actuaries, after all charges have been deducted.
According to the participants these are the fund values that would be paid to a male contributor, age 40, when taking out the fund either 10, 15 or 20 years ago to January 1998. Level contributions of £2,000 per annum amount to total contributions of either £20,000, £30,000 or £40,000 respectively.
There are two types of pension funds represented in the survey each year - with-profit and unit-linked.
The with-profits funds have been operating in Ireland for longer than unit-linked ones. Because of their nature - in-built guarantees, the smoothing out of returns to avoid volatility and the reliance on final maturity bonuses - with-profit funds had been consistently producing higher returns than unit-linked funds. Until this year.
However, as noted in past surveys, with-profit maturity values have also been artificially bolstered by higher-than-sustainable annual and final bonuses, something most of the with-profit companies have finally recognised with consequent adjustments to their bonus levels.
Our surveys have shown a steady dropping of with-profit values as a result, bringing them closer and closer to unit-linked values, which have not had such a wide discrepancy in values over the years, despite their reputation for being more volatile.
This year the stock market boom in 1997 finally paid dividends for unit-linked values and resulted in higher returns from unit-linked funds in the survey.
(A note of caution: in the real world someone on the verge of retiring in January 1998 would most probably have shifted his money out of stocks and into safer cash funds and would not have benefited to the same extent as our fictional retiree.)
Participating companies this year are Friends First, GRE Life, Standard Life, Scottish Provident and Norwich Union, all providing with-profit (or unitised with-profit) fund data.
Companies providing unit-linked fund values are Standard Life, Lifetime, New Ireland, Hibernian Life and Irish Life. Lifetime joins for the first time having celebrated its 10th anniversary in operation.
Irish Progressive and Canada Life declined to participate this year. Eagle Star remains the only other major company that has consistently refused to participate in the survey.
Other well-known companies like Ark Life, Equitable Life, NZI and the newcomer CGU Life (formerly GA Life) have not been on the scene for the minimum 10 years required to participate.
