Standard Life doubles exit penalties

Standard Life, the mutual insurer that has lost billions in the equity markets in the past three years, moved yesterday to stop a stampede of policyholders from cashing in policies at inflated values by more than doubling the exit penalties on its with-profits fund.

Standard Life, the mutual insurer that has lost billions in the equity markets in the past three years, moved yesterday to stop a stampede of policyholders from cashing in policies at inflated values by more than doubling the exit penalties on its with-profits fund.

The insurer held back from applying a market value reduction (MVR) on policies until September last year when it slapped a 10 per cent charge on early encashments. From now on, anyone cashing in, switching or transferring a life insurance policy will receive a MVR of up to 20 per cent, while unitised pension policies will be chopped by 25 per cent.

Yesterday's increase puts Standard's penalty higher than the 20 per cent exit charge for policyholders in the financially stricken Equitable Life.

Many insurers are taking action to restrict the outflow of capital from their with-profits funds, which have sustained heavy investment losses in the past three years. Legal & General, Scottish Widows and Royal & SunAlliance have all imposed MVRs in the region of 25 per cent. The AMP-owned financial services group NPI imposed a 30 per cent exit penalty on its with-profits bond last year.

Standard said the increases in penalties "follow a significant increase in withdrawal activity", which puts pressure on the capital available to support payouts to the remaining policyholders.

John Hylands, the group finance director, said: "Despite the reduction we applied in September, there was still a significant difference between the amount being paid to customers and the market value of the underlying assets. We have recently seen a significant increase in surrenders. For this reason we have taken action now to protect the majority of customers who intend to remain fully invested."

Standard will announce the bonuses it will pay to with-profits policyholders on 3 February and is expected to inflict swingeing cuts to reflect its poor investment performance.

Tom McPhail, a pensions adviser at Hargreaves Lansdown, said: "There are no prizes for guessing what is going to happen in February. Many policyholders will have been jumping ship ahead of the bonus cuts next month."