Axa takes lead in increasing bonuses

AXA Equity & Law this week increased the bonus rate on its with-profits bond from 6.5 to 7.25 per cent.

This is the first time any of the companies that provide with-profits bonds have increased the rates.

Two years ago these bonds offered above 10 per cent, but cuts in interest rates and falling investment returns have cut the figure to between 6.5 and 7.5 per cent.

Other companies offering with-profits bonds are not planning to increase their bonuses. NPI, one of the biggest providers, this week in effect moved in the opposite direction to Axa by cutting the 3 per cent terminal bonus on investments made between 1 October 1991 and the end of 1992.

The bonds take lump sum investments into life offices' with-profits funds. They have attracted billions of pounds from people wanting a 'safe' alternative to diminishing returns from building societies.

Duncan Kerr, Axa's chief actuary, said the company was able to increase the bonuses because 'we take a view on what we think the situation is going to be over the next 18 months'.

Norwich Union last week relaunched its with-profits bond after an absence of two years from the market. The bond, at present paying an income of 7 per cent, has a minimum investment of pounds 5,000. It is possible to take monthly, quarterly, half-yearly or yearly income from the fund.

Companies reserve the right to apply a 'market value adjustment'. This means they can reduce the value of payouts on surrender if the stock market falls dramatically. Most policies also carry an exit charge.