Norwich Union to cut with-profits bonuses

NORWICH UNION, the country's third-largest life office, is making sharp cuts in with-profits policy bonuses to bring yields more into line with investment returns.

But, even after a cut of 7.2 per cent in the payouts on 10-year policies and a 3 per cent cut on 25- year endowments, the policies are still paying out more than their asset share.

The yield on a 10-year policy comes down from 14.4 to 13 per cent, and on 25-year policies it falls from 13.1 to 12.9 per cent.

For a 29-year-old man paying a monthly premium of pounds 50, this means a cut of pounds 912 in the payout to pounds 11,815. On a 25-year policy the payout is cut by pounds 3,078 to pounds 97,645.

Philip Scott, chief actuary and general manager, said falling inflation meant that, although returns were coming down, endowment policies delivered better value for money than at any time except the late 1980s, which was exceptional.

Norwich Union is including a letter to policyholders with its bonus declaration reassuring them that the vast majority of policyholders need not be concerned about the policy failing to pay off their mortgages.

Mr Scott said that policies taken out within the past two or three years could be vulnerable if investment returns were lower than predicted.

On 25-year policies maturing in 1993 the terminal bonus makes up 41 per cent of the total payout.

Ron Calver, general manager (UK life), said the terminal bonus should be around a third of the payout.

Tunbridge Wells Equitable Friendly Society has managed to increase the payout on its 25-year endowments although returns on 10-year policies are being cut.

The return on a 25-year policy rises from 13.15 to 13.29 per cent. The new payout of pounds 62,790.35 for a man of 29 taking out a policy at pounds 30 a month in 1968 compares with Norwich Union's pounds 58,237.

Norwich Union is planning to shed jobs at its headquarters over the next two years. The staff is expected to be trimmed from 6,400 to between 5,500 and 6,000 by voluntary early retirement and redundancy.