Abbey cuts with-profits penalties

ABBEY today provided a crumb of comfort for its suffering with-profits savers when it announced its latest bonus rates. There will be no annual bonus for 2004. Instead, the early-surrender penalty charges are being reduced. The bad news is that maturity values on 25-year endowment policies are well down compared with a year ago and remain among the worst in the industry.

The changes to penalty charges - known as market value reductions or MVRs ? affect Abbey National Life, Scottish Mutual and Scottish Provident policies.

Abbey National Life with-profits business is invested in the Scottish Mutual with-profits funds. Scottish Mutual announced in December 2002 that it was closing its with-profits fund to new business, and Abbey National Life stopped offering its own with-profits policies in February 2003. The Scottish Provident with-profits fund closed to new business in August 2001 when the company became part of Abbey National.

Abbey says terminal bonuses have been maintained or improved on most Abbey National Life, Scottish Provident and Scottish Mutual policies, which also include pensions plans and investment bonds. Terminal bonuses have been re-introduced on some policies where they were previously zero.

This is true compared with six months ago, when it last made a bonus announcement. But compared with 12 months ago, the payout on a 25-year endowment is down from £49,702 to £43,549. Last week, Royal London announced a 25-year with-profits endowment payout of more than £61,000.

Pension plan investors have fared better than endowment policyholders. The transfer value of a unitised with-profits Scottish Mutual personal pension after 10 years based on a monthly premium of £200 (with a return of fund death benefit) is £28,536 compared with £27,512 a year ago. The figure for Abbey National Life personal pensions is £27,959 compared with £26,902 in March 2004.

MVRs on both pensions plans, which stood at more than £2,600 have been scrapped.

The surrender value of a Scottish Provident with-profits bond based on an initial investment of £10,000 is £18,255 compared with £17,167 a year ago. The Scottish Mutual with-profits bond payout is £10,380. Last year it was showing a loss over 10 years, paying out just £9,574.