With-profits woes

Bonuses have been cut

BBC Radio 4's Inside Money was broadcast on Saturday, 16 August, and Monday, 18 August, 2003.

With-profits investments are the driving force behind our pensions, endowment mortgages and savings plans.

 Listen to the programme

But how many of us actually understand how they work, and if we did would we still want them?

With-profits policies are linked to the performance of shares.

They are supposed to be managed in such a way that they smooth out the highs and lows of the stock market while relying on annual and final bonuses for their growth.

But after three years of falling markets, the life insurers who sell these policies have slashed bonuses, and in some cases, failed to pay any at all.

It feels like we have ordered a fridge and been given a coolbox Alison Clarke

This has left customers fuming.

Fifteen years ago, listener Alison Clarke decided to take out a "with profits" endowment with Scottish Widows.

She wanted to save for her children's future and was hoping her policy would pay out around £34,000 when it matures in five years time.

But that is now looking highly unlikely. In fact, Alison could end up with only half this amount.

She decided to join Inside Money to find out more about how these investments work, and whether she should stick with her policy.

She told the programme: "We have paid into this policy through good times and bad.

"There has never been any suggestion that things were doing dismally, and yet it feels like we have ordered a fridge and been given a coolbox."

The bottom line for Alison is: with five years until her policy matures, and £3000 worth of premiums still to pay, should she continue?

Presenter: Lesley Curwen
Producer: Jessica Dunbar
Senior Producer: Jennifer Clarke