Friends Provident cuts with profits bonus rates
Friends Provident with profits policyholders had a shock today when drastic bonus rate cuts were announced. The cuts are a response to an estimated minus 10.5 percent gross investment return on the With Profits Fund last year.
The cuts mean that with profits payouts will be lower while most final bonus rates are reduced and some regular bonus rates are reduced. The biggest final bonus cut, from 35 percent to 12.5 percent, is for UKP Series policyholders with an individual life plan, although regular bonus rates are unchanged. Final bonuses are cut completely from FPLP Main Series 15-year unitised personal plans. FPLMA series 10-year unitised with-profits bonds get a doubly whammy with the final bonus cut to 10 percent and the regular bonus cut to 1.25 percent. Friends Provident chief actuary, Andy Carr, said “To ensure that we are fair to all customers, we have reviewed regular bonus rates to target an appropriate balance between the guaranteed portion and the total level of benefits”.
The fall in returns on the fund has also led to an adjustment in the Market Value Reduction (MVR) rate. This is intended to protect those who remain in the fund by imposing exit penalties on those withdrawing their money. “MVRs have also been adjusted to ensure fairness between customers surrendering and those who remain invested in the fund. We needed to reduce bonus rates to reflect the fall in underlying investment values” said Andy Carr.
In addition to falls in stock markets, the With Profit Fund investment yield was also hit by negative commercial property and minimal fixed interest investment returns. At the end of last year 16 percent of the FPLP With Profits Fund was invested in equities and property.
