Thinner pickings on hand in the endowment stakes: Bonus payments are being scaled down, writes Vivien Goldsmith

THE payout on the average 10- year, with-profits policy has fallen by 7.7 per cent, while 25-year policies are down by just 1.2 per cent on last year.

The 10-year policies still yield an average of 11.8 per cent a year and the 25-year policies 12.5 per cent.

With-profit policies have an annual bonus added each year to provide a guaranteed build- up, and a final bonus as a top- up payment to reflect the investment returns over the life of the policy.

Payments in recent years have been out of line with investment returns - hence the cuts in bonus payments. Money Management, a magazine for financial advisers that conducts annual surveys of the performance of with-profit policies, says: 'The smoothing nature of with-profit endowments means that the process of adjustment has to be a gradual one - although it may not look like that to policyholders facing some of the sharpest cuts in maturity payouts.'

Philip Scott, general manager of Norwich Union, predicts that payouts on short-term policies will continue to fall for one or two more years, while 25- year policies are likely to continue falling for longer but to come down more slowly. These 25-year policies, which are usually sold to back interest-only mortgage loans, are regarded as the flagship investments of life insurance offices.

Advisers rely heavily on the past performance figures when picking an endowment, and companies are reluctant to see themselves slip down the rankings.

The proportion of the final payout that is made up of the terminal bonus has been growing over the past 10 years to reflect the high investment returns earned in the 1980s. The magazine says: 'It could be argued that these bonuses now comprise too high a proportion of payouts, leading to a greater degree of volatility than might be considered ideal for with- profits policies.'

The latest round of bonus cuts has caused a significant shift in the top performers. Over 10 years, Pearl, Friends Provident, Standard Life and Scottish Amicable have fallen out of the table. Scottish Amicable cut payouts sharply - by 17.2 per cent.

General Accident, which tops the 25-year tables, first made it to the top rankings in 1991.

The only offices that earn a place in the top 10 over 10, 15, 20 and 25 years are Tunbridge Wells and Royal London. Those making three appearances include Clerical Medical, Friends Provident, Norwich Union and Standard Life.

Source for tables: Money Management. The magazine is available in large newsagents. Or for a copy of the May issue, which carries the full survey, write to: Subscriptions Manager, Greystoke Place, London EC4A 1ND. Tel: 071-405 6969 ext 203. Copies cost pounds 3.95, and there is no charge for P&P. Cheques should be made payable to FTBE. Credit card payments are also accepted.

(Photograph omitted)