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Shaky markets subdue with-profits bonuses

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Friends Life has increased or held with-profits bonus rates for the majority of its 1.7 million customers for 2012 as positive investment returns allowed the provider to increase payouts.

The firm increased or held final bonus rates for the Friends Life FP with-profits fund compared with January 2011.

Regular bonus rates for the fund have been maintained while some unitised rates have increased. Friends Life says over- all payouts to the fund’s 891,000 customers were “slightly higher” than last year.

The fund achieved investment returns of 5.6 per cent for pre-demutualisation business and 4.3 per cent for post-demutualisation business in 2011. Similarly, payouts to the 587,000 investors in the Friends Life Company with-profits fund have increased compared with last year. The company says most final bonus rates for the fund have either increased or stayed the same while regular bonus rates have been held. The fund produced a return of 1 per cent last year.

Friends says there are “modest” changes to final bonus rates in the Friends Life Assurance Society with-profits fund. Most regular bonus rates were frozen for investors in the fund, which has 208,000 investors. The fund posted a return of 0.9 per cent in 2011. Regular bonus rates in the FPLAL closed fund, which has 14,000 customers, were held while some final bonus rates were increased and some fell.

Aviva has increased payout values of with-profits products compared with 2011. A 25-year endowment will pay out 7.4 per cent higher than 2011, an annual rate of 5.6 per cent for a regular-premium monthly product.

The five-year bond returned an average of 3.1 per cent a year with a payout value 8 per cent higher than the previous year while the 10-year bond returned 4.4 per cent a year with a 1 per cent increase in payout values compared with 2011.

Aviva, which has 1.8 million with-profits customers, has cut bonus rates for with-profits investors. It has reduced the annual bonus rate for unitised with-profits policies in the ex-CGNU fund and unitised life policies in the ex-NULAP fund by 0.25 per cent.

There has also been a 0.5 per cent reduction in the regular bonus rate for conventional endowment policies in the ex-CGNU and ex-CU funds. Final bonus rates for unitised with-profits policies, which were increased in July, have been reduced by 6 per cent on average due to falls in investment markets.

Propositions director Phil Willcock says: “Thanks to the strength of our with-profits funds, we have been able to protect our customers from the full effects of market volatility.”

Hargreaves Lansdown pension investment manager Laith Khalaf says: “Annual bonuses are likely to be muted for the foreseeable future. Once promised they are guaranteed, which creates a liability that the insurance company has to meet and normally leads to less investment freedom for the fund. Insurance companies are therefore reluctant to offer decent-sized annual bonuses and are more likely to offer any rewards to investors through terminal bonuses.”

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