Don't give up on with-profits; Jeremy Gates looks at the nation's money issues and ponders whether with-profits policies are as bad as they're cracked up to be.
Billions of pounds sitting in the mighty with-profits funds run by the big insurance companies were invested to build lump sums, cover mortgages or pay pensions - and many savers will be wondering why they bothered.
In February and March, the major providers announce their annual bonuses - equivalent to interest earned on savings accounts - according to the performance of their funds during 2011.
The money, added to the basic sum assured of each policy, is paid to the policyholder on maturity.
This year, and for years previously, the news for many is grim. Even when shares perk up, many with-profits bonds struggle to gain much benefit.
Legal & General (L&G), with 600,000 with-profits customers in a pounds 14 billion fund, says its fund grew 1.7 per cent in 2011; it is maintaining annual bonus rates on its endowments (to reduce potential shortfalls for homebuyers) but has cut bonuses on most bonds and pensions.
Aviva's fund lost one per cent, while Friends Life claims to have delivered 5.6 per cent. A ten-year pounds 10,000 bond is worth pounds 14,904 with L&G, and pounds 14,199 at Standard Life.
By general agreement, the star performer is again the Prudential. Its 20-year Prudence Bond delivered around 6.9 per cent, the 20-year pension fund produced 5.7 per cent and 25-year endowment some 6.2 per cent.
Prudential claims an estimated pounds 22 billion has been added to the value of its with-profits fund since 2002; its fund is up 92.7 per cent in ten years, against a 59.5 per cent rise in the FTSE All-Share index.
Patrick Connolly at leading financial advisor AWD Chase de Vere said: "This bonus declaration is a clear endorsement that Prudential remains, by some distance, the leading provider of withprofits investments.
"But overall, with-profits returns continue on a downward spiral as product providers, including Prudential, make cuts to annual bonus rates and payouts, almost regardless of how the underlying investments perform.
"However, there are huge differences between the best and worst providers in terms of where they can invest, the bonuses they pay and likely future returns.
"Payouts from the Pru compare favourably with stronger with-profits providers such as Aviva and Legal and General, and are hugely superior to weaker providers like Scottish Widows and many Phoenix Life funds."
The poor performance of too many funds is no surprise. Many have never recovered from paying out far too generously in the late 1990s, when they paid larger and larger bonuses to pull in new business.
As they battle to right the listing ship, providers have reduced risk by selling equities and putting more money into fixed interest investments, bonds and gilts.
Even when shares have a barnstorming run, little benefit might filter through to with-profits investors.
Ironically, many of the hardest-hit savers won't know their money is invested with Phoenix as it is a consolidator of 13 with-profits funds worth pounds 37 billion, all closed to new business.
Within the Phoenix portfolio, brands include Pearl, Scottish Mutual, National Provident, London Life and Britannic. Some funds boast a zero per cent return on the sum assured for 2011, plus a zero per cent bonus.
Many investors face penalties, possibly as high as 20 per cent, if they get out.
Many with-profit funds, including Standard Life and L&G, change market value reductions (MVRs) on withdrawals - justified, say providers, by the need to protect other investors.
As conditions have eased, some providers have cut MVRs back. Some, like Friends Life, have scrapped them altogether.
Investors might also consider what they would do with money withdrawn from with-profits. If it goes into a savings account paying a miserly rate of interest, the with-profits bond might look comparatively generous!
It is also worth remembering, when the annual statement shows the rise in the value of your with-profits bond in the previous 12 months, that aggregated annual bonuses are guaranteed, regardless of what happens on the stock market and in other sectors.
Mr Connolly said: "While it is easy to claim that all with-profits is bad, there may be perfectly good reasons to retain existing policies.
"The financial strength of the product provider, their ability to invest in growth assets such as equities and their commitment to pay competitive bonuses and payouts are important considerations.
"At AWD Chase de Vere, we have many cautious clients who are invested in Prudential with-profits fund and a large proportion of them are perfectly happy with performance and lack of volatility of their policies. For these investors, the best advice is usually to stay put."
There is another important influence at play.
Many providers are today trimming annual bonuses to reduce the amount of capital that regulators think they need to keep out of trouble.
Instead, this money is more often switched to final bonuses - meaning those who jump out early could miss out.
Shellie Wells, spokeswoman for Phoenix Group, said: "We firmly believe that where we can, it is better to give priority to final bonuses than annual bonuses, as it allows us more flexibility to invest some of the fund in growth assets such as equities, rather than fixed interest.
"Final bonuses can boost the final payout significantly."
Mr Connolly added: "Funds may have guarantees on bonus rates on endowments, or on annuity rates where pension investments are concerned," he said.
"While it may be sensible for many Phoenix policyholders to head towards the exit, and some falling MVRs (exit penalties) may create a welcome opportunity to do that, it is important for policyholders to fully understand any guarantees they may be giving up first.
"Otherwise what may seem like a lucky escape could prove to be a costly error."
Before any investor dumps a withprofits policy, according to Mr Connolly, they should get it examined by a financial advisor. This could take two or three hours' work, and most advisors charge pounds 150-200 per hour.
Legal & General saw its with-profits fund grow by 1.7 per cent in 2011 - when growth was hard to come by