By Louise Greenwood
BBC Radio 4's Money Box
With-profits policyholders are still facing huge exit penalties if they try to cash in their investments early, despite improvements in the stock market.
Millions of people have their savings or pensions in such policies but many - angry about poor returns - want to take their money out.
However, despite the improving stock market, the exit penalties imposed by life companies, called Market Value Adjusters, are in some cases, going up.
These "MVAs" are designed to stop investors leaving early with more than their fair share of the fund, damaging the prospects for those who stay.
Money Box listener John paid a 15% penalty when he moved a small personal pension from his life company, Legal and General, in January. He told the programme:
"I got in contact with them and eventually they wrote back and said 'Hard luck, that is how it is'".
'Long way to go'
The level of the MVA should follow the stock market, but although the FTSE 100 has risen by 38% in the past year, Tom McPhail, Head of Pensions Research at Hargreaves Lansdowne said:
"There are a number of companies - and some of them are fairly high profile, like Axa, Standard Life, Scottish Widows - that are still applying MVAs well up into the 20s."
These firms have defended their exit penalties, telling Money Box that although the market has recovered there is a long way to go.
But at other weaker insurers - which have transferred the bulk of their assets to safe investments like gilts and bonds - the outlook for policyholders is far worse.
Mr McPhail said investors in these firms will continue paying very high penalties for transferring out early.
"If you are sitting in one of these weaker with-profits funds and you are thinking 'Should I get out?' waiting a few years will not significantly improve your position."
And some firms are actually increasing their exit penalties.
At Scottish Provident they are up by six per cent since last October, at 33%.
But Pat Conolley, Research and Investment Manager at John Scott and Partners said investors considering getting out of any fund early should take advice:
"If you use the example of somebody who has got four years to run, if they are facing a 20% penalty to get out, in any new investment they get into, they have got to make an additional five per cent a year just to break even on where they would have been."
BBC Radio 4's Money Box was broadcast on Tuesday, 17 April, 2004, at 1204 BST.
The programme will be repeated on Sunday, 18 April, 2004, at 2102 BST.