MVRs - no, not a new type of vehicle - but the exit penalties insurance companies charge if you cash in any of your with-profits savings policies.

It stands for Market Value Reductions and they've been charged on everyday products like pensions and endowments ever since the stockmarket plunged in value.

But many people don't realise that charges are also being levied on regular, small withdrawals from with-profits bonds - even though financial advisers tend to recommend these policies precisely because they can be used to provide a regular income.

"You should be entitled to withdraw some of those profits"

Roddy Kohn

Independent Financial Adviser, Kohn Cougar

Companies have introduced these penalties mainly to deter investors from cashing in their bonds in entirety.

Roddy Kohn, an independent financial adviser at Kohn Cougar says that: "You should be entitled to withdraw some of those profits without it being treated as though you�re cashing in the whole thing."

Tax break

The idea of a with-profits bond, is to invest a lump sum - for up to 20 years - and hope that it appreciates during that time.

Unlike some long-term savings plans, this one allows you to withdraw some of the money over the investment period.

Withdrawals of up to 5% a year are treated as "tax paid" by the Inland Revenue, which is an added attraction for some investors.

But this incentive can often have a hidden cost.

Penalty

Eagle Star for example, charges a penalty of up to 15% on withdrawals of 5% a year, while on withdrawals of 3% no penalty at all is incurred.

Some policy holders complain that it�s unfair and see no reason for the huge difference in charges.

According to Roddy Kohn, the firms are penalising those who are withdrawing more in income than the current bonus rate. He adds: "You might have invested in that policy for the last 10 years and have built up a massive surplus which has no bearing on the bonus rate."

"reviewed and redesigned its bond range"

Eagle Star

Eagle Star says it has: "reviewed and redesigned its bond range since July 2001 and the MVR free withdrawal limit was set at 7.5% for customers who have bought the bond since."

Some good news

A number of companies are now beginning to reduce their MVRs on policies and the hope is that this will continue in the future.

Friends Provident do not charge for withdrawals of up to 5% and Norwich Union allow customers to take out up to 7.5% a year without paying MVRs.