Friends Provident and L&G have joined Norwich Union in making reductions to exit values on their with-profit funds to combat volatile market conditions.
The number of Friends Provident policies where a market value reduction (MVR) would apply is around 250,000 (mainly pensions policies) out of 1.3 million with-profit policies in force at the end of May 2008.
Where MVRs do apply, they will range from 5% to 14% on claims made from October 21 2008. However, payments will not be reduced where a policy guarantees that an MVR will not apply on a particular date, on death or due to regular withdrawals.
The main policy years affected are 1999 and 2000 although for some older policies (those in Pensions Series 1), where there is a guaranteed bonus rate of 4%, MVRs are applicable for most years of entry.
The last time Friends Provident introduced MVRs was May 2001. They were gradually reduced over the last few years and removed completely in January 2007. The provider says it will continue to monitor the level and appropriateness of MVRs on its policies.
Meanwhile, Legal and General (L&G) has announced cuts of 5%-9% to final bonus rates on with-profit policies although no changes are being made to regular bonus rates.
The decision comes after the group reported overall investment return after tax on the assets backing conventional life with-profits policies was circa -14% for the period from 1 January to 13 October 2008.
The changes will mean a 25-year £50 a month mortgage endowment maturing after this change will pay £38,565 compared to £41,293 before this change. A 20-year £200 a month pension maturing after this change will pay £90,999 compared to £98,511 before this change.
Mark Gregory, managing director of with-profits, says: "We have made the decision to reduce final bonus rates to take account of some of the negative movements in the investment markets. Through smoothing we are protecting our customers from the full impact of these market falls.
"In making these changes, we are ensuring fairness between all of our customers, whether they are leaving or remaining in our with-profits fund.
"We are committed to the future of with-profits and continue to see demand for our products, especially amongst cautious investors."
Yesterday, Norwich Union announced it would be reintroducing MVRs of between 13% and 22% on unitised with-profit policies.IFAonline
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