Friends Provident cuts final bonuses by up to 50%

by Gill Montia

Story link: Friends Provident cuts final bonuses by up to 50%

Friends Provident is warning its with-profits policyholders that the value of their final bonuses will be cut, after the firm’s £13 billion with-profits fund lost more than 7% during the first half of this year.

The life and pensions provider says it will maintain its regular bonuses but that final bonuses paid on investments in its main with-profits fund could be reduced by over 50%.

For example, a Friends Provident saver with a 15-year unitised pension plan in the main with-profits fund will receive a regular bonus of 4%.

However, the final bonus will be reduced from the 18.7% on policies maturing in January of this year, to 2.1%.

Meanwhile those investing in a 25-year conventional life policy will receive a final bonus of 17.5%, down from 40% in January. The regular bonus remains unchanged at 0.25%.

A male policyholder paying £50 a month into a 25-year conventional life policy will now receive a final payout of £32,885, down from £36,425 in January.

According to Friends, the dramatic fall in final bonuses can be attributed to the lower investment returns resulting from the credit crisis.

In the six months to the end of June, the FTSE All Share Index was 13% lower than at the beginning of the year.

The period also saw negative returns on Friend’s fixed-interest and commercial property investments.

The company’s chief actuary, Brian Harrison, says Friends needs to achieve annualised returns of around 8% on it longer-term policies to maintain the payout levels of January 2008, whereas the estimated return on the main fund over the first six months of 2008 minus 7.25%.

Around 32,000 policies will mature between now and the end of December.