More bad news for endowment mortgage and other with profits customers as Scottish Widows announce their latest bonus rates.  The £14 billion with-profits fund fell by 17.5  percent last year and customers can expect shortfalls and bonus rate cuts

The Scottish Widows announcement of changes to bonus rates for with-profits policies will hurt both conventional and unitised with profits policyholders.   There are drastic cuts in final bonuses for unitised,  with-profits pension policies.  An example is for units purchased in 1990,  final bonuses have been cut to 9 percent  this year from 35 percent  in July last year.  Regular bonuses have also been cut for both conventional and unitised polices.  Those with conventional, with profits pensions taken out before 1999  get no bonus at all.  One small piece of good news was  that a regular bonus has been added to 410,000 unitised and 216,000 conventional with-profits policies,  increasing their guaranteed minimum payouts on maturity.

When it comes to shortfalls,  conventional, with profits pension policyholders are particularly hard hit. In this case a £200 per month,  20 year policy will only pay out £75,140,  compared with £85,722 a year ago.  A fall of £10,582.  Mortgage endowment holders also face further shortfalls as a £50 per month,  25 year mortgage endowment will now only pay £29,678 which is £3,633 below target.  For a mortgage endowment the following payout table was given:

* Examples based on a male non-smoker investing £50 a month from age 29 for the policy
terms shown ending on 1 February 2009. The change in value shown includes the premiums paid over the
period.

Commenting on the announcement Kevin Doerr, Scottish Widows With-Profits Actuary,  said “2008 was a very difficult year for global markets and has highlighted the advantages of a diversified investment strategy, smoothing and with-profits guarantees.” It’s the smoothing process that has cut bonuses now and some speculate this was due to too much being paid out in earlier years.  While Scottish Widows highlight how the With Profits Fund pre-tax investment return at -17.5 percent compares favourably with a 30 percent fall in the UK equity market,  this result is going to be a major headache for all those policyholders relying on the profits that are meant to flow from with profits policies.

Mr Doerr also pointed out that currently 54 percent  of the Funds’ assets are in equities and property and that this was a “balance between prudent management of the fund and being well positioned to gain from market recovery by retaining significant exposure to these key asset classes.” While this asset mix will benefit from any economic recovery, those with  a more gloomy outlook might see it as exposed to any further market and economic declines.  It was also reported that the holding of government bonds increased by 13 percent to 23 percent and corporate bonds accounted for 19 percent of the Fund.

For further information policyholders can call 0845 845 0845.

Technorati Tags: asset, bonus, endowment mortgage, policy, scottish widows, unitised

Friday, February 13th, 2009 You can leave a response, or trackback from your own site.