26 July 2002

Mutual status protects funds

By John Burns

FARMERS are right to worry about the impact of the falling stock market on their personal pensions, but some may have less to worry about than others, says one of the industrys leading pension providers.

Charles Beighton, life marketing manager at the NFU Mutual, points out that the benefits of investing in pensions and life insurance in companies with mutual status are particularly obvious when the stock market is losing value.

Since the beginning of June this year the FTSE has lost nearly a fifth of its value, but the impact is reduced for companies without shareholders demanding a part of the reduced margins and returns.

A mutual company will, therefore, be less affected, and if that benefit is combined with a record of sound investment and efficient management, the company and its products should prove more resilient, he says.

One measure of that resilience is the free assets ratio. It shows the extent to which assets exceed liabilities. In several recent surveys in the national press, mutual companies have topped league tables, with the NFU Mutual doing particularly well.

Mr Beighton says: "Overall the industry is affected by the reduced markets of late, but we, and similar companies, are less affected than our other competitors because of our investment philosophy, as well as our mutual status.

"Our fund managers take a balanced approach. We have a defensive strategy, keeping a proportion of our investment in property, cash, and fixed interest investments. We dont follow fads and fashions.

"We buy quality and stick to it. We look for long-term earning potential and we aim for good stewardship."

The impact of the FTSEs recent downturn on pensions also depends on the type of investment. "In general with-profits pensions are less dramatically affected by falling markets, than mixed-fund pensions. Thats because of the smoothing out effect of the with-profits fund."

For example, the NFU Mutual calculates that a £100,000 with-profits pension fund vested in an annuity on Jun 1 this year would have bought an annual pension of £8426.

The same fund vested on Jul 19 would have bought an annuity of exactly the same amount, even though the FTSE had fallen by 19.4%.

But a £100,000 mixed-fund pension fund, which would have been worth £8426 on Jun 1, would have slipped to £7250/year on Jul 19.

Mr Beighton also says the current situation, and the above examples, underline the need for those approaching their chosen pension age to review their investments and pension arrangements with the help of an independent financial advisor.

Possible actions include moving funds to a different type of pension fund, or postponing purchase of the annuity until stock markets recover. &#42

Investors should check their pensions performance, says Charles Beighton.