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Bear bloodbath sees NU axing terminal bonuses

Norwich Union is to slash payouts by up to 20 per cent and wipe out terminal bonuses on some with-profits contracts as it grapples with the bear market.

The annual bonus is cut on bonds from 3.75 per cent to 3.25 per cent, on stakeholder from 4.25 per cent to 3.5 per cent and on other pensions from 4.74 to 4 per cent.

NU says it has paid out about £1.5bn in bonuses to its 3.3 million policyholders in the last year.

The payout on a 25-year £50 a month endowment policy plummets to £70,025 from £85,518 last year. A 10-year personal pension based on £200 a month will now pay out £31,331 compared with £33,558 last year.

Terminal bonuses are cut altogether on a variety of 10-year policies, including a former CGNU 10-year personal pension, a CGNU (including General Accident) 10-year endowment and a Commercial Union 10-year personal pension.

Insurance analyst Ned Cazalet says: “The payment of bonuses in a period of negative investment returns will have cut into reserves. NU are in the middle of the pack. We are expecting worse from other big players.”

NU senior actuary David Riddington says: “We are comfortable that the declaration is sensible in the present conditions and is not eroding our capital base. People should not be too hung up on terminal bonus and should look at payouts instead. New policyholders will not pick up the tab for the last few years of investment returns.”

Chartwell chief executive Craig Wetton says: “Has the industry paid out too much in the past and are the cuts more dramatic than they should be? The loss of terminal bonus raises questions about the long-term management but they are still one of our preferred providers.”

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