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&#39WP payouts set to fall for 20 years&#39

Maturity values of with-profits funds will con-tinue to plummet even if the stockmarket rises 7 per cent annually until 2020, according to F&C.

It claims research reveals that a 25-year with-profits policy taken out in 1977 with a £50 monthly premium would have had a maturity value of around £75,000 at the end of last year.

But if the same policy had been taken out in 1995, the projected maturity value in 2020 would have plunged to around £25,500 – even if the FTSE 100 climbed by 7 per cent year on year and if payouts had not been cut by more than 10 per cent a year.

The firm says at the end of 2002, the average policy was still making maturity payouts in excess of its net asset value. According to Tillinghast-Towers Perrin, from which F&C obtained the research, an investor with a policy with an NAV of £60,000 was receiving a payout equivalent to a policy with a £75,000 NAV.

F&C director Jamie Farquhar says: “It is a great shame that life companies are in the position they are in – applying market value adjusters and reducing bonuses – but the chickens always come home to roost.”

Needanadviser.com director Jo Roberts says: “The markets have changed drastically since 1977 and so have interest rates and inflation. Nobody knows what is going to happen over the next 17 years.”

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