"Todays bonus announcement demonstrates the benefit of being able to smooth the ups and downs of equity market movements."
Healthy Investment, the mutually owned provider of savings and investments, has announced the bonus rates that will be paid this year to members who hold investments in its with-profits funds. These bonuses are based on the friendly society’s performance in 2020.
Healthy Investment’s flagship Ethical With-Profits Fund is managed on cautious lines and aims to provide returns that consistently beat inflation without exposing members to the level of volatility associated with funds that invest predominantly in equities.
This year’s reversionary bonus rates are as follows:
Ethical ISA: 2.5% of fund value
Investment Bond (adviser) 2.5% of fund value
Investment Bond (direct) 2.0% of fund value
Tax-Exempt Savings Plan 0.65% of sum assured
Unlike “unit-linked” investments, the with-profits model under which most of Healthy Investment’s products operate does not pass all investment returns, or losses, on to members in real time. Instead, it “smooths” the investment experience of its members by holding back a proportion of positive returns in years of strong performance to help mitigate the falls in value that would otherwise be experienced in years of weaker markets.
Returns are paid to members in the form of “bonuses” that are added to the value of their investments. These include reversionary annual bonuses, interim bonuses applied when withdrawals are made part-way through the year, and terminal bonuses applied when an investment matures or if the member dies.
Peter Green, chief executive of Healthy Investment, said, “The FTSE 100 lost 14 per cent of its value during 2020 so, given that context, today’s bonus announcement demonstrates the benefit of being able to smooth the ups and downs of equity market movements.
“Interest rates on deposits with banks and building societies, meanwhile, have continued to decline to levels that see the real value of savings eroded by inflation, so I am doubly pleased to have been able declare competitive bonus rates on all our with-profits policies, providing members with protection against inflation while minimizing volatility.”
By way of illustration of the value of the 2020 bonus and those applied in preceding years, an investment of £10,200 (the full-year subscription limit at the time) made into a Healthy Investment Ethical ISA on 1 January 2014 would, based on the 2020 bonus declaration and the terminal bonus in place at the time, have been worth £14,040.35 as at 31 December 2020. This equates to an average annual return of almost 5.5 per cent.
Mr Green attributed the performance achieved by Healthy Investment in 2020 to keeping the Society’s costs under control while retaining a balanced portfolio of assets in its With-Profits Fund.
He said, “Minimising our costs helps us provide our members with the best-possible annual and final bonuses. Our costs are some of the lowest among comparable organisations, and keeping these under control will continue to be a priority for the Society.”
Healthy Investment’s Ethical With-Profits Fund has a diversified portfolio of assets, much of which is now held in government securities and fixed interest corporate bonds. These assets are generally seen to be less volatile than stock market investments, which currently make up a minority of the Fund’s asset allocation.
Healthy Investment, a friendly society which was founded in 1835 as The Independent Order of Rechabites, has its origins in the temperance movement that grew up during the Industrial Revolution. Today it provides ethically invested ISAs, Investment Bonds, Junior ISAs, Child Trust Funds and savings plans to more than 110,000 members.