Conundrum for composites

Just when you thought the scandal of with-profits funds could not get any worse, some are sinking to new depths of disregard for policyholders.

We all know that, when with-profits providers found that the so-called 'smoothing effect' of with-profits funds had not worked, they moved the goalposts and applied massive market-value reduction penalties to capital withdrawals. But some have not just moved the goalposts - now they have moved the pitch and the stadium too.

One UK-based international mutual firm in particular is now applying an MVR on any regular withdrawal that is above the rate of annual bonus that it is currently applying to the fund.

Their current bonus rate is 2.5% per annum. That means that any investor taking more than 2.5% as a regular withdrawal will now suffer an MVR on their income too.

So, not only is an investor's capital locked into this firm's with-profits fund due to high MVRs, but the investor cannot now even take regular withdrawals of any more than 2.5% of their original investment.

Even the Inland Revenue says that up to 5% of the original investment capital can be taken from a with-profits investment bond each year in the form of regular withdrawals, with no immediate tax liability, as they deem this to be a withdrawal of the investor's own capital. It seems that, unlike the Inland Revenue, the firm in question has forgotten whose money it was in the first place.

This is a new low in the with-profits saga, and it will cause serious difficulties for many investors. When will the Financial Services Authority get involved and do what they are supposed to do, which is to protect the interests of the investor?

Karen Plumb, Plumb Financial Services.