Abbey and Scottish Mutual cut annual bonuses by 0.5%
Abbey National Life and its sister company, Scottish Mutual, will today be the first of the mainstream insurers to impose a mid-year cut on policyholders' annual bonuses.
And a leading financial adviser warned that this could be only the latest move in a "cascade" down to widespread bonuses of only 4 per cent.
Abbey National Life and Scottish Mutual are cutting their rates by 0.5 per cent, taking those on with-profit life insurance policies down from 5.25 per cent to 4.75 per cent and on pension policies from 6 per cent to 5.5 per cent. This follows cuts by Scottish Mutual of 0.75 per cent last February and 0.25 per cent in February 2000. Abbey raised its bonus by 0.25 per cent to 5.5 per cent in March last year, and cut it by the same amount this March.
John Turton, head of life and pensions at the adviser Bestinvest, said: "We have been privately predicting that bonuses would come down to the level of the bank deposit interest, net of tax. That would be 4 per cent, and there will be even more emphasis on terminal bonuses, which are at the discretion of the insurer."
Abbey National blamed its moves on the "extreme and prolonged volatility" of global stock markets.
But Ken Lowes, chairman of the national independent adviser Lowes Financial Management, said: "This is an absolutely correct decision by Scottish Mutual. If they had not cut their reversionary bonuses then they could end up like Equitable Life with clients facing enormous problems. Markets have now steadily been falling for two years. With-profits bonds smooth out market movements, they do not eliminate them."
Mr Turton pointed out the Department of Trade and Industry had increased the stringency of its requirements for life and pensions providers to keep reserves in safer securities, such as government stock. This was reducing insurers' room for manoeuvre, encouraging them to cut bonuses in light of the continued weakness of stock markets.
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