Both Standard Life and Clerical Medical have this morning announced further cuts to bonus rates on their with profits policies, and SL warns members should expect rate cuts to continue.
Details of the latest bonus rates update by Standard Life reveals most rates on unitised life and pensions and conventional with-profits policies have been cut again, as the life insurer argues policies have to continue to be smoothed to bring policies payouts in line with their true value along with the removal of mutuality benefits.
“The new bonus rates announced today are consistent with this progression towards aligning payouts to the value of underlying assets. They also take account of the gradual removal of the benefits of mutuality from maturity and retirement payouts, as announced in October 2004. As a consequence, payouts for comparative policies at maturity and retirement will be, on average, seven per cent lower than previously,” says a statement from the firm.
“Because of the factors affecting long-term investment returns described above, the trend towards lower bonus rates and payouts will continue in the foreseeable future even if equity markets continue to recover steadily,” warns Standard Life.
New rates applied from today will see SL’s unitised regular Life and S2 Life with-profits funds cut from 2.5% to 2% - the (life) with-profits fund continues to pay 3% - while the Pensions with profits One, Pensions 2 with-profits 2 and the Pensions Millennium with-profits funds fall 75 basis points from 3.25% to 2.5%.
Conventional life on sum assured annual bonuses will drop 25bp to 0.25% and from 1% to 0.5% on attaching bonuses, and conventional pensions on sum assured will be cut from 0.75% to 0.25% plus 0.25% on attaching bonuses.
MVRs – which SL labels as unit price adjustments – continue to be high in some cases, as with-profits bonds still carry a potential MVR of between 0-25% depending on what date they purchased before July 2002 – no MVRs after this date for bonds – while unitised pensions carry 0-13% MVR except on policies started before November 19091 and after November 2002, and homeplan endowments have an MVR of 0-7% if purchased between November 1993 and October 2000.
Clerical Medical has also had to cut annual bonus rates but there are now higher payouts at maturity on at least 75% of policies and MVRs have been cut by 2-4%.
“Although investment markets have had difficult times over the past few years, we are positive that the fund will continue to be a suitable investment for policyholders and that bonus rates are sustainable under today’s market conditions, says Richard Myers, with-profit actuary at Clerical Medical.
Annual bonus rates on unitised life regular premium and flexible growth bonds are cut by 20 basis points to 0.8% and 0.5% respectively, while pension regular and single premium policies are cut by 50bp from 1.5% to 1% and the with-profits income fund regular bonus remains at 4.5%.
Offshore with profits policies are also cut from by 50 basis points to 1%, except in the case of euro-denominated funds which see payouts cut from 1% to 0.5%.MVRs also now vary from between 0% on bonds purchased in 1995, for example, up to 17% on bonds purchased in 2000, adds the Bristol-based life company.
One of the key differences shown between the two firms is the percentage of the fund held in equities, as Clerical’s equity backing ratio is 59% to December 31st 2004 compared with 35.5% at Standard Life.
The majority of Standard Life’s fund is still held in fixed interest (41.1%) while 14.4% is diversified into property and 9% is held in cash.IFAonline
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