Scot Widows cuts bonus rates

By HELEN LOVELESS, MAIL ON SUNDAY ENTERPRISE EDITOR
Updated: 19:00 EST, 13 July 2004

SCOTTISH Widows has become the latest insurer to cut bonus rates for with-profits policyholders.

The changes, to take effect from 1 July, will see regular bonus rates fall by 0.5% on the Flexible Investment Bonds and Jersey with-profits bonds. The rate will reduce by 0.5% for investments made into the Flexible Options Bond Income Fund in 2002 and by 0.25% for investments made during the first half of 2003.

It is more bad news for beleagured with-profits policyholders. Last year Scottish Widows slashed annual bonus rates across a wide range of funds by up to 20%, hitting the value of millions of policies. It also announced it would no longer pay annual bonuses to savers in a number of its with-profits funds.

And earlier this month Norwich Union introduced a 0.75% charge for customers in the old NU with-profits policy fund, while simultaneously freezing bonus rates.

Scottish Widows blamed the need to reduce bonus rates on the poor performance of the stockmarket in recent years.

Actuarial director Adrian Eastwood said: 'Stockmarkets still have a long way to rise to match their peak values. The value of the FTSE 100 index declined by 36% between 1 January 2000 and 1 July 2004 and since the with-profits fund has a significant proportion invested in equities, the total value of its assets also declined over this period.'

In the past few months alone the returns on with-profits investments have fallen across the board.

For example, a male non-smoker, aged 29 at outset, who paid £50 a month into a Scotttish Widows 10-year with-profits endowment policy, would have received £6,335 if his policy matured on 1 September, 2003. By September 2004 the payout will be down to £6,040.