GA Life, one of the country's top ten life insurers, yesterday announced it was reducing its annual bonus to with-profits savers by 0.5 per cent - despite growth in savers' funds of more than 20 per cent.
The bonus declarations will dismay millions of savers who had hoped to cash in on a bonanza year for the equity markets. In 1997, GA's with-profits fund saw investment growth of 20 per cent. Yet pension savers with GA will only be promised a bonus of 8 per cent for the year.
Competitors of GA - which can keep up bonuses because of its giant reserves - are likely to declare even lower bonuses. With-profits pension savers with Norwich Union will get a return this year of just 6.75 per cent - compared to 7.5 per cent last year.
GA said it could no longer pay such high levels of annual bonus when markets were all anticipating much lower growth in future.
Company actuaries, who set the annual bonuses paid to policyholders, measure the amount they can guarantee against the yield on long-term gilts.
Because these plunged last year to a low of 6.25 per cent, not seen since the 1970s, actuaries no longer feel confident enough to guarantee high annual bonuses every year. Instead, the actuaries are promising more in maturity payouts - which are not guaranteed.
According to the Institute of Actuaries, life offices have only been able to guarantee high annual bonuses because of unusually high investment growth right back to 1974, when stockmarkets hit their nadir in the midst of the oil price shock.
The low yield on gilts reflects a belief, shared by actuaries, that as long as inflation stays low, investment returns from stocks and shares can be expected to do the same.
Nick Dumbreck, a leading figure at the Institute of Actuaries, said:
"I think it is absolutely right that companies should be reducing bonuses at this time. It doesn't mean savers are getting less overall - they are just getting less now."
He added that lower inflation would mean their savings would be worth more in the long term."
Peter Nowell, chairman of the Institute's life board, added: "In the past we had some very high investments returns - and some very high inflation. During the 1990s, inflation has become lower so the target for investment growth has become lower as well.
"My concern would be if life offices tried to keep their annual bonuses right up, which might have an impact on their financial strength. Annual bonuses ought to be below gilt yields."
Savers with 25-year policies, who have benefited from the long bull-run, can expect unprecedented payouts this year. A man who started paying pounds 50 a month to a 25-year GA Life policy, maturing now, would receive a payout of pounds 120,784 this year, up from pounds 114,554 if he had started a year earlier. This is the same as an interest rate of 14.2 per cent a year.