New research from investment management company Managing Partners Ltd (MPL) has revealed a sharp rise in the level of discontent among with-profits policyholders over the past year.

The research shows that 28 per cent of 45 to 54 year-olds – the highest proportion of policyholders – say they intend to stop investing in their policies, representing a substantial increase on the 19 per cent who said this in similar research last year. More than one in three in this age group hold with-profits policies.

Jeremy Leach, managing director of MPL, says, ‘Another year of poor financial markets and disappointing bonus announcements has pushed with-profits policies another step closer to their inevitable demise. Those people in the older generation will have bought endowments to pay off their mortgages and will be bitterly disappointed by the shortfalls they have been left with. But the high degree of disillusion among the younger generations also demonstrates that the with profits concept has no future.’

The research also reveals a very low level of penetration of with-profits-based products among those aged 35 and under. 

Its findings reveal that just seven per cent of people aged between 25 and 34, and four per cent of those aged 18 to 24, have a with-profits policy. This compares to 23 per cent of people aged 35 to 44 and 35 per cent of those aged between 45 and 54.

According to MPL, ownership has declined among those investors who were most disillusioned last year, the over-55s, of which only 25 per cent now own a policy compared with 28 per cent a year ago.

MPL argues that investors looking for an alternative to with-profits investments that provide steady, predictable returns should consider investing in traded life policies (TLPs) – United States-issued life assurance policies sold before the maturity date to allow the original owner to enjoy some of the benefits during their lifetime. 

TLPs are purchased at a discount from their maturity value, which, in the majority of cases, is fixed at the outset and means that they are guaranteed to rise in value. The TLP market has seen huge growth from US$50 million (£25 million) in 1990 to $20bn in 2006.

Leach says, ‘While TLPs carry the risk that it is unknown when the lives assured will die, the key attraction of a TLP fund is that, with the right diversification and actuarial analysis, they can be used to deliver steady, predictable returns.

‘Because of this high degree of certainty and their solid underlying value, it is possible for products that invest in them to secure a substantial degree of gearing to enhance returns and initial allocation rates. This is particularly attractive to UK investors in countering the surrender penalties imposed for pulling out of with-profit funds.’