Friends Provident cuts with-profits bonuses by up to 20%

by Gill Montia

Story link: Friends Provident cuts with-profits bonuses by up to 20%

Friends Provident has cut bonus rates on its with-profits policies by up to 20%.

The life and pensions provider has attributed the move to a weak investment performance by its with-profits fund, which lost 10.5% during last year.

Around 1.2 million policyholders are affected. Typically, the payout for someone investing £50 a month into a 25-year policy will be down to £29,184, from £36,425 a year ago.

According to the company’s with-profits actuary, Mike Collins, the financial turmoil of 2008 could have produced a worse outcome if Friends had not been able to “smooth” the results with returns from better years.

However, so called “smoothing” cannot realistically protect policyholders in a year when investment returns are ravaged by plummeting values of shares, bonds and property.

The company has also reviewed it Market Value Reduction (MVR) rates, to reflect the latest market conditions.

MVRs effectively set exit penalties for customers who may need to cash in their savings before their policies mature.

Friends reintroduced MVRs last autumn along with some of its rivals; they are usually applied if the value of the underlying assets is less than the value of the plan, including all bonuses.

In the coming weeks, the UK’s other insurers will be revealing their 2009 bonus rates, with Norwich Union due to report in the next few days.