With-profits savers are 'unhappy'

What is more, nearly a third of 2,500 with-profit savers described themselves as "very unhappy" with returns.

Nearly a quarter of savers said they would stop paying into with-profits.

With-profit funds invest in the stock market and 'smooth' out investment returns by holding back money made in good years to pay out in bad ones.

However, with-profit providers argue that over the long term, up to 25 years, investment returns have comfortably beaten what is available through a High Street deposit savings account.

Market crash

With-profits are one of the most widely held of investment types.

There are some 32 million with-profits policies currently in force.

A stock market crash between 2000 and 2003 damaged the financial position of many with-profit funds.

In many cases, the model was unable to stand up to the damage caused by a market crash.

As a result, returns fell and one-off bonuses paid to investors were cut or got rid of altogether.

"Between 1998 and 2007, the average returns on with-profits products from a number of leading providers fell by over 50%," Jeremy Leach, managing director of MPL, said.

"Despite improving stock markets, many with-profits based products continue to disappoint investors with poor returns," he added.

Regulator warning

In May, city regulator the Financial Services Authority (FSA) warned that providers of with-profit policies were failing to treat their customers fairly.

It said insufficient advice and "variable quality" after-sales service were being given to with-profit policyholders.

In particular, the FSA was worried that after-sales literature was jargon-heavy and missed out key information.

The FSA warned insurers and financial advisers to up their game or face enforcement action.

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