Friends Provident slashes payouts
In a grim start to the with-profits bonus season, the insurer has declared that regular and final bonus rates have been reduced and payouts are lower.
The payout for a 30-year-old male, paying £50 a month into a 25-year policy has been slashed from £36,425 a year ago, to just £29,184 today - a reduction of nearly 20% in the past year.
The underlying investments in the fund only lost 10.5% over the year and the terminal bonus this year is now only £704.
Tom McPhail, of Bristol based adviser firm, Hargreaves Lansdown said: 'With the possible exception of Equitable Life, this is just about the worst with-profits bonus declaration I have ever seen.'
Generally all policies maturing this year will pay out less than plans that matured last July and the group is now paying 0% bonuses on their 25 year with-profits pensions - worse even than a bank current account.
With-profits funds invest in a mix of shares, bonds, commercial property, which all suffered harsh losses last year. The other element of the investment, cash, has seen returns fall substantially.
In theory, with-profits investors are credited with annual bonuses that are 'smoothed out' by holding back some of the return in good years, so they can be paid more than they have earned in the bad years thereby, levelling out any investment volatility.
Friends Provident investors whose plans matured in late 2008, would actually have been better off taking the surrender value after 24 years, according to figures from Money Management.
Money Management’s figures show that the payout in September 2008 was £32,885, but savers could have taken a surrender value a year earlier, in August 2007, of £32,751. After allowing for £600 in monthly premiums, savers actually ended up £466 worse off as a result of hanging on until maturity.