If you come to know that your with-profits fund is closing, there is no reason to panic. It just means new people can’t buy in. Your investment should stay mostly as it is, but there are some things you should know about owning a with-profits policy in a closed fund.
What are fund closures?
Why a with-profits fund closes
There are a few reasons why a fund might stop selling new policies.
- The fund isn’t performing well.
- The company is unable to attract sufficient number of new customers.
- The company isn’t making enough profit on new policy sales.
- Another insurance company is taking over the fund.
What happens to closed funds?
When a fund closes, it’s only really closing to new investors. Your money can stay in the fund with and can potentially earn bonuses in the future.
If your fund is going to close, the insurance company will write to you with the details. They must inform you the reason and meaning of closure and options available to you after closure.
How do closed funds perform?
Closed funds don’t necessarily do better or worse than open funds. But the manager of a closed fund might switch from riskier investments to more stable ones, e.g. from share to bonds.
What to do?
In case your fund has valuable guarantees such as a generous lump sum if you hold on to the policy, then you should not consider removing your money.
But if you think your closed with-profits fund isn’t doing as well as it should and you have better investment options elsewhere, a better idea will be to end your policy early.
Before you decide, speak to a financial advisor for more options.
Are closed with-profits funds still secure?
All funds, whether open or closed, are regulated by the Financial Conduct Authority. One of their main roles is to make sure you’re treated fairly.
If your policy is transferred to another insurer
If another company buys your with-profits fund – or buys your insurer – your policy will be transferred to the new company. In both cases, your insurance company will inform you in detail in writing.
There’s no need to worry about transfers as there are laws and regulations to make sure you are not out of place when your policy changes hands.