Norwich Union cuts bonuses

INSURER Norwich Union, Britain's largest provider of life insurance and pensions, has dealt its savers a fresh blow, unveiling plans to cut with-profits payouts following the stock market slide.

The company, owned by insurance giant Aviva, said final bonus rates on its unitised and conventional with-profits policies would fall by around 5% from 1 August.

The announcement comes five months before Norwich Union usually makes its bonus declaration in January and some experts predict other companies will follow with mid-year cuts.

The policies, which aim to smooth out stock market volatility during the course of the investment, are taken out as mortgage endowments, private pensions and long-term investments.

The move will see the final payout on a 25-year endowment policy with monthly premiums of £50, which matures next month, fall to £85,518 from £89,787, while the maturity value of a 10-year personal pension with premiums of £200 a month will drop to £33,744 from £35,100.

The insurer is also reducing regular bonuses, the amount added to with-profits policies each year. On unitised policies, where contributions buy units in the fund, the bonus falls 0.5%. NU said it may cut regular bonuses for conventional with-profits business at the end of the year.

NU has twice raised the penalties customers must pay if they want to cash in policies early. The penalty is now 12% of the investment, compared with 6.5% previously.

Today it blamed the bonus cuts on poor stock market conditions, pointing out that the FTSE 100 has fallen 25% this year. The with-profits fund has fallen in value by 8.3% this year. NU had been looking for growth over the full-year of 7.25%.

'The change in regular bonus rates is part of the prudent management of the with-profits fund,' said chief actuary Mike Urmston. 'We are seeking to achieve the correct balance between the proportion of the overall return that is paid in the form of bonuses guaranteed on maturity or retirement, and the non-guaranteed final bonus.'

Regular bonuses on NU's with-profits stakeholder pension will be cut to 4.25% from 4.75% and on its with-profits bonds to 3.75% from 4.25%. A NU with-profits bond that matured on 1 January this year would have shown a yield of 8%. But the yield falls to 7.5% for bonds maturing from 1 August.

Danny Cox, retirement plannning manager at independent financial adviser Hargreaves Lansdown, says: 'If Norwich Union can't sustain the current size of bonuses, it is unlikely other insurers can. It is inevitable when bonuses aren't currently reflecting the true value of assets in the fund that other insurers will cutting their bonus rates.'