Should with-profits MVR apply?
|Investment | Protected
Asked by yuvrajan0206, submitted
20 October 2010.
I bought an 55 day Access Bond jointly with my wife from Scarborough Building Society (SBS) on 29 June 1999. On maturity on advice from SBS we I invested £5,000 in Legal and General With Profits 10 Year Bond. We received a letter from L&G on 1st June 2010 advising us that our Capital Guarantee date is 30 June 2010 and extends indefinitely beyond for encashment of the bond..
We decided to encash the bond but are advised a 14% MVR applies on the value of the bond. There is a mention of MVR in the documentation but we think it only applies to early surrender and not on matrity. When I questioned this with L&G I was advised it applies on guaranteed bonds and will aply indefinitely.We hold a with profits bond with another Insurance company which states that MVR not applicable for bonds bought before certain date.
Should MVR apply on maturing bonds?
Answered by Justin on 25 October 2010
It sounds as though you’ve been sold a Legal & General 10 year guarantee Capital Control Growth or Income Bond. Sadly the ’10 year guarantee’ is pretty pointless as it doesn’t include any market value reduction (MVR) on the underlying with-profits fund.
A number of insurers offer the ability to encash with-profits bonds on a certain date (usually the 10th anniversary) with the guarantee that a MVR will not apply, but as you’ve found to your cost L&G does not.
What concerns me most is that Scarborough BS advised you to switch money from the safety of a savings account into an investment where your capital was at risk. I suspect they did so because it was a profitable move for them, with-profits bonds can pay around 7% upfront commission, rather than because it was the best advice for you.
If Scarborough sold the with-profits bond as a guaranteed investment and didn’t make you aware that you could lose money I think you have a case for being mis-sold the bond – especially if either you or your wife were non-taxpayers at the time (as the bond is taxed at basic rate which cannot be reclaimed).
If you feel this is the case then write to them detailing your complaint and request compensation equal to the MVR. And if you don’t get a satisfactory outcome take your complaint to the Financial Ombudsman Service, which is free for you.
Otherwise I’m afraid you’ll have to put this down to a tough lesson on why it’s rarely a good idea to take financial advice from a bank of building society.
If I’m mistaken as to the bond you have and your L&G documentation clearly states that an MVR will not apply on maturity or thereafter then I’d suggest speaking to them again to rectify the error.
Good luck resolving this.
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investment or other financial decisions. You should always undertake your own research into whether a product or service is appropriate for your needs and, if
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