Phoenix Share Discussion Threads

[hvs] 09/4/2014 19:06

Exactly.

You signs and you get what you paid for. NO FREE DINNERS.

[scburbs] 09/4/2014 15:12

ursus, LOL! Yes, difficult to get those consistent top performers without the fresh money!

Fenners66, I think you are making a good case for why some level of exit fee will remain appropriate. The customers have signed up for a long term investment and the fund has invested on that basis. Whilst they should be free to change their minds and exit this has consequences for the fund and should be recognised through an appropriate exit fee.

[aleman] 09/4/2014 13:55

It means they will carry more cash to cover leavers, adding to the underperformance of the defensive assets they hold. (Not the case with investment trusts, which can also borrow.)

Performance shouldn't be the issue for closed funds. Excessive charges and exit fees should. I expect that will be what the FCA is mainly looking at, although it might be asked why policyholders don't seem to understand that they are in a defensive fund and that they can't complain of dull performance in the years close to retirement as they should be looking to reduce volatility anyway. Younger holders should normally look to leave closed funds, though, and should not be stopped from doing so by unfair charges.

These affairs keep raising questions about cross-subsidization between young and old who have different priorities. Anyone in such a fund will be tempted to exit when the subsidy works in their favour, leaving those left behind worse off. The authorities never seem to address this issue. Different age groups should be segregated by subdividing somehow. My money purchase company pension used to do this, moving older employees into safer assets automatically. It's changed hands twice since the company folded, though, and the current arrangements are less clear..

[fenners66] 09/4/2014 13:06

I guess a closed fund may also suffer from customer exits, however that occurs, because it will add pressure to sell assets (perhaps at the least favourable times) without the new funds coming in to render forced sales unnecessary. I suppose in some way like a Ponzi scheme new money buys time to meet obligations ?

[ursus] 09/4/2014 11:37

Scburbs - "The idea that fresh money (of itself) improves investment performance is badly flawed" - of course, but it does enable you to run a Ponzi scheme....

PHNX remains more seriously wounded by the FCA fiasco than other similar businesses such as Chesnara. Why so? My guess is continuing selling pressure from Fidelity and the likely impending sale by Manjit Dale.

Meanwhile, a 9% yield for the rest of us.

[scburbs] 09/4/2014 10:57

85% of AuM above benchmark sounds like pretty good performance to me.

"Overall investment performance improved, with 85% of assets under management
performing above benchmark (2012: 79%). This has been led by strong performance
in Ignis' key funds, with ARGBF delivering a 6% return over the last year (against a SONIA (Sterling Overnight Interbank Average benchmark) return of 0.4%). ARGBF also won the prestigious 'Best Performing Fund Over 2 Years' at the Hedge Fund Journal's UCITS Hedge Awards 2013."

hxxp://www.thephoenixgroup.com/~/media/Files/P/Phoenix-Group-V2/Attachments/pdf/Annual%20Report%20and%20Accounts%202013.pdf

[scburbs] 09/4/2014 10:49

"This [zombie fund] is the nickname given to a savings plan that has closed down. They have no fresh life being brought to the investment by new customers, and, as a result, the fund's performance can be nothing short of diabolical."

Why would a closed fund perform worse than an open one?

This is like saying that a unit trust (open ended with variable amounts to invest) should outperform an investment trust (closed ended with a fixed amount to invest - albeit they can issue more shares).

The idea that fresh money (of itself) improves investment performance is badly flawed.

It is possible that in a mixed business (i.e. open and closed funds) which is internally managed that more intensive management could go to the open funds, so in this type of environment the closed funds might underperform the open funds.

This potential conflict does not exist in a business wholly managing closed funds. The reality might be that closed funds tend to gravitate to lower risk and lower risk could lead to lower long term returns (outperforming in a bear market and underperforming in a bull market). If investors don't want a lower risk product then they should be allowed to leave with an appropriate exit penalty.

[hvs] 06/4/2014 14:51

PHNX should have no problem with FCA . Mantime enjoy the YIELD

Its companies like Abbey, Aliied Dunbar and Zurich and some foreign companies like Manulife and Canada Life. They have taken severe advantage of long term policyholders.

[uppompeii] 05/4/2014 12:36

Envirovision - unlikely, its more to do with QE and gilt yields impacting on the amount that has to be set aside to cover the guarantee, for example, I am currently transferring out of some final salary schemes. One reason only : the TV's are up 79% in 8 years, the benefits 19%. I am willing to sacrifice the guarantees taking a 35 year timeframe and a multi asset approach to the sipp. With the recent budget announcement it is a no brainer to me, I want control.
Not recommended for all by any measure but as a prof qualified person I can sign it off myself. Famous last words, lol

[envirovision] 05/4/2014 10:32

Interesting experience Bengrady. I notice they have increased the transfer value recently, in fact the transfer value has increase by over 100% in the past 3 years ! It now stands well in excess of the present accrued bonus.

However the bonus is only accruing a fractions of a percent YOY

I wonder if this massive transfer rise is to try to get rid of me long before I decide to try and convert it to the attached gar.

[bengrady] 05/4/2014 09:29

Envirovision,

I am semi retired and joined a gar pension scheme in 1985 with a promised rate of 9.90%. When I turned 60 I bought an annuity with the accumulated funds and got the guaranteed rate.

I got the promised rate but the pension company, one of the biggest in the UK, seemed to do everything in it's power to limit the amount they paid out. I was not allowed to increase the monthly payments, the yearly statements showed little or no increase for several years before the maturity date while my other pension funds I held showed fairly healthy increases, and more importantly I had to buy my annuity on the exact day I reached 60, any other day even the day before or the day after would have meant I would have got the standard rate of the time.

You should therefore carefully manage your gar pension to make sure you escape the traps which may be placed in your path.

Good luck.

[fenners66] 04/4/2014 17:40

enviro see above.
If market interest rates for long dated or undated bonds at the time were 16% (say) there is no reason why they could not have purchased those bonds and retained them since. I know there would be some complicated actuarial assumptions as to how much to invest in those bonds etc. but I guess its possible. Just isolated the bonds and keep them until pension obligation met....

[envirovision] 04/4/2014 14:47

I have a closed pension that's been sold on a number of times and is now owned by reassure part of swissre I believe. It has a gar of 15.8% I am worried that when I come to take this pension in the next 10/15 years they won't have a hope of honouring this gar.

The bulk of the gar frenzy of the 80s will indeed be coming due in the next 15 years onwards.

I would like someone to explain how an earth the the industry can meet these obligations? Although it would be nice to think these gars will all be met, I find it rather hard to believe that will be possible.

[hvs] 04/4/2014 13:36

Rescue from what ????

U pays money and makes your choices.

[minesapint] 04/4/2014 09:58

The Times 3 April - Extract:
Alex Wright, the fund manager who now runs the UK Equity part of what used to be Anthony Bolton's Fidelity Special Situation fund sold more than 3.8m shares at 684p. He now holds nearly 3.9%
Having been stuffed by Equitable Life's failure to hedge their guaranteed annuitities Im hoping that PHNX can part rescue my retirement. Still looking for an entry point.

[hooley] 03/4/2014 13:25

In contrast to likes of the Pru and L&G - whose EMC is valued at 3.5 and 2.2X their respective equity, Phnx stands at a 45% discount. In each case the valuation of the funds' liabilities undertaken by the respective actuaries is clearly not a determinant of the rating. Some might say that's illogical. The other Zombie, Resolution, stands at a 25% discount to its net worth. For good measure, Phnx now employs 840, a modest fraction needed by those who continue to write pension and life assurance business.

[jonwig] 03/4/2014 08:32

uppompeii - yes, I remember now the quoted growth rates. And there was premium relief and MIRAS at some time.

Hooley - L&G have a huge new business push, workplace, private pensions, fund management and something I've seen: IHT planning seminars, usually held in posh hotels with a buffet thrown in. Their charges for these wrappers must be enormous.

[hooley] 02/4/2014 22:14

jonwig - thanks for the clarification. Should selling closed funds have been prevented? The Zombies don't need a continuing flow of fresh blood to add to their existing book. My understanding is that they can sustain their survival on their current portfolio for many years. Phoenix has insurance fund of a similar size to L&G and larger than SL. The market values Phnx @ £1.5bn whilst its net worth is £2.7bn. It threw off £1bn of cash flow too in 2013. Compared with it, L&G looks overpriced.

Just for good measure, Phnx returned 7.6% on its equity last year, half the rate recorded by L&G. It may well be that Phnx has a low risk investment profile or is it keeping back less for its shareholders?

[uppompeii] 02/4/2014 20:52

jonwig, though in fairness the growth rates on quotes was regulated, the lower and upper on pensions was I think 9% and 13% (long time ago) and wasn't decided by the insurers, and bonus rates on wp policies were much higher and of course inflation and interest rates too.

[jonwig] 02/4/2014 20:29

Hooley - what was shameful was the over-optimism of the industry in the 1990s about the potential returns from endowment policies, and consequent mis-selling.
That was made worse by the fact that most such policies were linked to mortgages, which then fell short of expected returns.

Some Life Assurers chose to ring-fence their endowment books and run them off, or even sell the books on. (Hence Resolution, Phoenix.)
With no new business to support what was essentially a pyramid operation, these 'zombie funds' needed to invest in a bigger proportion of gilts to cover guaranteed returns. Over time, equities outperformed, hence zombies had lower returns.
Of course, in the event of a huge market crash, zombies would be safer!

What appears to be shameful is the large exit penalty in some cases, as described on this thread.
~~~~~~
fenners - I think most insurers did hedge their liabilities for GARs. One noted exception of course was Equitable Life!

[hooley] 02/4/2014 19:22

The City Editor of the Daily Mail today described the creation of Zombie funds as shameful. Are we to assume that pensioners and endowment holders of these funds get a worse deal than those available from life assurance offices who are still writing business? Where is the evidence for his assertion?

[fenners66] 02/4/2014 16:27

The guaranteed annuity rates were a product of the 1980's and were set to customers at a time when interest rates were much higher.
If the insurers had any sense they would have locked into long term (or undated) bonds at the time so to make sure they could achieve these rates on redemption of the pension fund.
They are supposed to have been sold with small print and the trick is (watch out for mis-selling again) not informing your customers 30+ years later that they are entitled to a GAR perhaps even encouraging them to trawl the market for alternatives...

Chronic Investor ran a piece on this last year.

[skinny] 02/4/2014 16:15

"They typically pay twice the standard rate, for example, currently a 65 year old male typically receives an 11% annuity.

And so we do not believe the recent budget proposals are likely to have a material impact on this component of our annuity business. This is particularly the case if the proposals around free guidance for policyholders are implemented, as we believe policyholders will continue to make rational financial decisions and will choose to take up those valuable rates rather than seek an alternative product."

I'm sure they are right, as you say, 11% is quite amazing.