Scot Widows cuts with-profits

By THIS IS MONEY
Updated: 04:40 EST, 27 July 2005

SCOTTISH Widows has cut payouts on with-profits endowments, pensions and some bonds for the second time this year. The reductions come even though Lloyds TSB-owned Scottish Widows, which has am with-profits savers, estimates its £18bn with-profits fund has grown by 15% before tax in the past year. It has also increased the proportion of shares held in the fund from 42% to 47% over that time.

A 25-year, £50-a-month mortgage endowment maturing in August will pay £40,823, a 3.2% cut from £42,172 at the start of the year and down 8.1% from £44,413 a year ago.

A similar savings endowment would pay £42,871 - just over a third of the 1998 payout of £107,941.These figures assume the endowment was taken by a 29-year-old man.

Pension payouts are also still falling. A 20-year, £200-a-month plan has had 1.6% shaved off its payout, leaving it at £94,558, down 1.6% from £96,038 at the start of the year. A similar plan would have paid £311,015 in 1998.

Richard Ungless, senior actuarial manager at Scottish Widows, denies payouts are being sacrificed to boost the overall strength of the with-profits fund. He says the cuts reflect the fact that while the final bonuses added to maturity payouts have risen slightly, they have been more than offset by the low annual bonuses of recent years.

On the flipside, the company has cut the market value reduction (MVR) exit penalty it imposes on savers cashing in their plans early to an average of 3% from 9% a year ago.

•NORWICH Union is cutting its MVR early exit penalties on with-profits plans. The exit penalties on with-profits plans taken out in 1998 drop to an average of 6% from 10%, plans taken out in 1999 see penalties reduced to an average of 10% from 13%, for 2000 the figures fall to 13% from 15% and for 2001 business they are cut to 4% from 5%.