Mutuals head the list for best-value savings

MUTUAL insurance companies dominate the ranks of the best providers of good value in savings, pensions and bonds, according to an authoritative survey published yesterday.

League tables, based on ratings devised by the Office of Fair Trading, show mutuals taking four of the top five places for consistently good value.

Equitable Life, Scottish Widows, Friends Provident and Standard Life rate above average on 14 criteria devised by the OFT which measure investment performance and charges on the policies. The only non-mutual included is Norwich Union, which converted to a listed company last summer.

The survey, sponsored by the weekly trade newspaper Money Marketing and conducted by KPMG, the actuarial consultants, also shows big differences in the amount life insurers pay out to policyholders.

A saver who put away pounds 20 a month in a with-profits policy for the past 25 years would collect pounds 48,162 with Wesleyan Assurance, which ranks top on these pay-outs. With Liverpool Victoria the pay-out would be pounds 28,685 - 40 per cent less (see table).

Worryingly, it also shows that pay-outs on most policies are now falling despite the sustained bull run on the stock market over the past 10 years.

In the 10 years to the end of 1997, insurance companies saw returns on UK equities rise to 16 per cent a year, compared with 14 per cent a year over the 10 years to the end of 1996.

Despite this, pay-outs on many policies have fallen sharply over the past year, suggesting insurers are passing on less to policyholders. A policyholder who saved pounds 35 a month for 10 years in a with-profits policy would have seen a pay-out of pounds 8,723 in 1991, says the survey. Today the same savings yield pounds 6,931, 20 per cent less.

John Jenkins, an actuarial consultant at KPMG, said: "The better investment returns would suggest that the average pay-out should go up, but they have instead gone down."

The drop in pay-outs probably reflects increasing reluctance among life insurers to pay policyholders the biggest bonus they can from the returns on investments. Until recently, many were criticised for keeping rates artificially high to attract new customers.

Earlier this year, the Institute of Actuaries warned that bonuses had to drop to prevent life offices being caught out by lower returns in future years.