Abbey National axes with-profits bonuses

One million Abbey National customers with pensions or savings products will receive no bonus on their policies after the UK's sixth-largest bank said dire stock market conditions had forced it to slash pay-outs to zero.

Abbey's move affects the vast majority of its with-profits customers, who have policies with one of its three insurance divisions. They are Scottish Mutual, Abbey National Life and Scottish Provident.

Scottish Mutual's half million policyholders with unitised with-profits will see annual bonus rates reduced from 3.5 per cent on life insurance contracts and 4 per cent on pensions to nothing from 1 March.

The same fate awaits holders of Scottish Mutual's traditional life and pensions with-profits contracts. Their bonus cut applies retrospectively to the 12 months to 31 December.

Abbey is the latest financial institution to slash bonuses pay-outs on with-profits policies due to falling equity markets and comes after Abbey was forced to bolster its life funds with more than £500m of extra capital. It is also under pressure because it is not able to remove bonuses on all with-profits policies. Some 280,000 customers with guaranteed policies will be paid between 3 and 4 per cent for 2002.

Although with-profits policies aim to help smooth out years of falling markets, many insurers have recently said conditions have been so grim that they have not been able to pay out any bonuses at all.