Standard Life has cut both reversionary and terminal bonus rates on its unitised life and pensions p...
Standard Life has cut both reversionary and terminal bonus rates on its unitised life and pensions products by up to 15%.
The mutual's rate cut will see final bonuses on its unitised life products drop from 4% to 3.25% and from 5% on pensions to 4.25%.
As a knock-on effect from the changes to bonus rates, Standard Life has also lowered some surrender value reductions (SVR) on its life products. The SVR on conventional life policies has been reduced from 20% to 15%, however the SVR on pensions remains at 25%.
The objective of these SVRs is to align withdrawal values with the market value of the policy's share of the with-profits fund.
As the changes to payout values are large, Standard Life has said it plans to increase the frequency of its review on bonus rates. While anticipating further cuts may be necessary, the mutual is hoping to make these more gradual in the future based on a review of rates every three months.
During its 2002 financial year, ending 15 November, the investment return on Standard Life's with-profits fund was -12.5%, according to the group.
John Hylands, group finance director, Standard Life, said: 'Investment conditions remain extremely challenging. However, the returns we are delivering to our customers are competitive and compare favourably to other investment choices.'
A 25-year with-profits endowment maturing today would provide a return of 11.3%pa compared to 8.2%pa on the average UK equity unit-linked life policy, he noted.
The mutual believes equities, in the context of a balanced investment portfolio, will generate better long-term returns than other asset classes.
Looking ahead, Hylands said Standard Life believes markets will recover in the next few years but long-term investment returns will not match those of past years.
He added: 'Because of this we may to need to continue reducing the amounts we pay to customers who take retirement benefits or whose life policies mature.
'Falling bonus rates will not necessarily mean that individual policies will fall in value ' just that final payouts may not be as large as they might have been in the past.'
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