Friends Provident to reduce bonus rates

Life insurer Friends Provident said today it was reducing bonus rates for some of its policyholders as a result of recent falls in the stock market.

The former mutual, which listed on the London Stock Exchange in July, said the reduction in final bonus rates for conventional with-profit policies would lead to a drop in payouts on maturing policies of around 7.5%.

It is also cutting the annual bonus on unitised with-profits policies by 0.25% with immediate effect.

The group said the cuts were in response to the UK stock market falling to a three year low, as well as "a significant reduction" in world stock markets.

It added that it had reviewed the rates to ensure that payouts continued to reflect the returns earned on assets and reduce the affects of market volatility.There is no change to regular bonus rates on conventional with-profits policies, or to final bonus rates on unitised with-profit policyholders.

Friends has also increased the maximum penalty for people surrendering their policy early from a maximum of 5% to 7% of the policy's value.

The group, which has around one million with-profits policyholders, could not say how many people would be affected by the reductions.

Friends said final bonuses on conventional with-profit endowment life policies have been reduced to a maximum of 162.5% from 185% for a 30 year policy, leading to an overall reduction in the value of the final payout of around 7.5%. While the final bonus rates for conventional with-profit individual self employed and personal pension policies have been cut from a range of 60% to up to 80%, resulting in a similar drop in the overall final payout.

Today's move will also reduce the regular bonus rate for most unitised with-profit life policies from 5% to 4.75%.

The rate for unitised with-profit individual pension policies has been cut from 5.75% to 5.50%, though new generation policies will see their rate fall to 6.00% from 6.25%.