Standard Life cuts final bonus rates

Standard Life today became the latest life assurance company to announce that it will be slashing final bonus rates for its with-profits policyholders.

The mutual life assurance company, the biggest of its kind in Europe, said the effect of the cuts will reduce maturity payouts by around 10%. It has also reduced the payouts on with-profits policies that are surrendered early by a similar percentage.

Standard Life blamed the move on volatile stock markets as well as a recent increase in withdrawals, and denied that the decision was connected to any deterioration in the company's financial position.

"Our primary objective is to treat all policyholders fairly. Difficult market conditions over recent years have been such that we have taken the decision to reduce payouts at this time," said John Hylands, group finance director at Standard Life.

"Our aim is to protect our payouts from market fluctuations, but prolonged downturns have to be reflected in payouts over time."

A 30-year-old paying ?50 a month into a with-profit plan for 10 years will see the final value of his/her fund shrink by nearly ?1,000, from ?9.875 if he/she had cashed it in February this year when final bonus rates were last set, to ?8.896 now.

In July this year the UK's largest insurer, Norwich Union, announced a 5% reduction in final bonus rates on its with-profits policies, affecting holders of endowments, stakeholder pensions and personal pension policies with the group. Following this, in September, Prudential cut final bonus rates and payouts on maturing with-profits investments and pension plans by up to 10%, a move which has affected two million of its policyholders.

Standard Life recently appeared in a Moneyfacts top five table of with-profits providers, when it said that it remained committed to the benefits of with-profits policies and had the reserves to support them.

A with-profits policy gets its name from rules that allow the provider to pay some of its investment gains into a pooled fund and then distribute surpluses in the form of bonuses. All with-profits policyholders benefit from the share-out.

City watchdog the financial services authority is currently reviewing the rules governing with-profits policies with a view to making them more transparent.