Savings and Pensions have 0% returns after inflation

Millions of people in long term investments have little or nothing to show for decades of saving, with one in five with endowments and pensions delivering poor returns.

Investors still have approximately £290 billion in with profit endowments, pensions and bonds, which were sold during the 1980s and 1990s as a way of getting steady, equity-like returns. The schemes, which invest in a mix of assets in good years to pay out in the bad.

However, many hard-pressed policy holders have made less than they would have done with cash over 25 or 30 years or nothing when taking account of inflation. Two out of 38 with profits pensions 5.4% of the market have returned less than the average 90 day cash return over 20 years of 4.6% a year.

Pearl Assurance has delivered an annual growth rate (including bonuses) of 3.9% on with profits pensions over 20 years, while London Life has returned 4.3% a year.

Inflation, as measured by the retail prices index, has run at an average 3.7% over the past 2 decades, the Office for National Statistics said so these policies have in affect barely made anything.

Overall, 70% of with profits pension providers have failed to achieve the average annual growth rate of 7.5% over 20 years. In contrast, the FTSE All-Share index has returned 17.3% a year over that period.

The below-par with profit pension providers include Scottish Life, Scottish Widows, Standard Life, Clerical Medical, Friends Provident, Axa and Norwich Union.

The growing picture among endowment policies is just as bleak. Close to three out of nearly 67 endowments providers 4.8% of the market have delivered an annual growth rate of 4% or less than the 4.6% achieved by a typical 90-day deposit account over the same period. They are Life Association of Scotland, National Provident Life and Crusader, which have around 38,00 policyholders between them.

Norwich Union the second largest with profits provider behind Prudential with 2.4m with profits pensions, endowments and bonds said last week its main fund lost nearly 11.8% during 2008, but imposed cuts of up to 17.9% on payouts. Some 15 year pension policies were worst hit.

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