CU trims bonuses on life policies

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The Independent Online
COMMERCIAL UNION has reduced returns on with-profits insurance and pension policies by cutting the annual and final bonuses it pays to investors.

CU, which has 450,000 policies in force, is cutting bonuses by half a point from 5 to 4.5 per cent on life policies, and from 6 to 5.5 per cent on pension policies.

Terminal bonuses are cut by 2.5 points, bringing the bonus down from 42.5 to 40 per cent on policies taken out before 1970 and from 25 to 22.5 per cent on those taken out since 1975.

The effect of the cuts, which come after a year when bonuses were held, is to reduce the overall return on a 10-year policy from 14 per cent in 1992 to 13.2 per cent in 1993, while the return on a 25- year policy drops from 13.5 to 13.3 per cent. Even allowing for a drop in inflation, the real returns on both policies are reduced.

CU, the first life office to declare its 1993 bonuses, has been the top-paying life office over 25 years and is placed seventh over 10 years, according to a survey of 43 companies conducted in August. It expects to maintain its top 10 rankings.

On unitised with-profits - a new version of traditional with- profits policies - bonuses on life policies have been cut from 9.5 to 8.5 per cent and from 12.5 to 10.5 per cent on pensions.

Gordon Harpin, CU's life manager, said it would be premature to suggest that home buyers should increase the premiums on with- profits policies to ensure that payouts covered the mortgage. Policies are set up with a 20 per cent margin on annual bonuses and the terminal bonus is ignored.

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