Standard Life cuts with-profits bonus

Standard Life said it was once again slashing bonus rates on several with-profits funds yesterday, leaving its customers continuing to pay the price for the insurer's forced shift out of equities two years ago.

Bonuses on two of the group's life with-profits funds were slashed from 2 to 1.5 per cent, while bonuses on three of the pension with-profits funds were cut from 2.5 to 2 per cent.

Customers with 25-year with-profits savings or mortgage endowment policies, which mature this month, are set to receive more than a quarter less than those whose policies matured a year ago.

This compares poorly to Norwich Union and Prudential, the only other providers to have announced this year's bonus rates so far. Norwich Union avoided cutting bonus rates, while customers with policies maturing this year found they were only about 4 per cent worse off than those whose policies matured a year ago.

Standard Life said in spite of a strong rally in the stock markets in the past three years, the UK market was still well below its December 1999 peak. Standard Life funds are invested predominantly in bonds, after it was forced to sell off equities two years ago to secure the capital position of the company.

However, gilt yields have plummeted over the past few months, meaning the funds have not only lost out on the growth in the equity markets but have also suffered from the poor performance in the bond markets.

Policyholders in 20-year savings and mortgage endowment products saw their policies rise just 1.3 per cent over the past year, a loss in value when inflation has been taken into account.