Friends Provident cuts with-profits payouts

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The Independent Online

Friends Provident, the UK life insurer, announced it was once again slashing bonus rates on many of its with-profits policies yesterday, adding misery to policyholders who have already seen the value of their policies deteriorate significantly over the past four years. The insurer said it was unable to maintain bonus rates given the current run of sluggish investment returns. The FTSE 100 is down more than 3 per cent since the start of the year.

Friends Provident, the UK life insurer, announced it was once again slashing bonus rates on many of its with-profits policies yesterday, adding misery to policyholders who have already seen the value of their policies deteriorate significantly over the past four years. The insurer said it was unable to maintain bonus rates given the current run of sluggish investment returns. The FTSE 100 is down more than 3 per cent since the start of the year.

While it said it will maintain interim bonus rates on its conventional with-profits policies, it would be slashing rates for its unitised with-profit holders by 0.25 per cent. In addition, it said it would make far bigger cuts of about 3 per cent in the terminal bonuses of both conventional and unitised policies which were now maturing.

Ben Gunn, the managing director of Friends Provident's life and pensions operations, said: "We have always stated that our objective when reviewing bonus rates is to treat all our policyholders fairly, both now and in the future. Although our with-profits fund has again provided a positive return, at 2 per cent for the six months ending 30 June 2004, the cumulative investment return since 2000 is still negative, at minus 4.7 per cent, reflecting the large fall in investment value earlier in this period. The changes announced today to bonus rates will ensure that there will be a closer alignment of policy payouts with their underlying investment values."

The cuts will be a further blow to Friends Provident's mortgage endowment customers, more than three-quarters of whom have already been informed that their policy will not pay out enough to cover their mortgage.

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