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Bonds hit as ScotEq slashes payouts

Scottish Equitable has imp-osed swingeing cuts on payouts from its closed with-profits funds following heavy investment losses, leaving some bond investors with less than the value of their original investment.

After five years invested, a £10,000 investment in a with-profits bond will now be worth only £8,402 compared with £13,911 last year as its terminal bonus is wiped out and replaced by a market value reduction that fluctuates daily by up to 30 per cent.

ScotEq accepts that many other with-profits policies will also no longer be getting terminal bonus.

It recorded investment losses of up to 16.6 per cent on its recently closed £2bn with-profits fund which has 65 per cent in equities.

A £50 a month 25-year endowment will now pay out £59,113 compared with £65,917 last year. A £200 a month 20-year pension policy for a man will pay out £161,804 after 20 years compared with £177,763.

ScotEq has closed its with-profits funds to new business and set up a new Sandler-style product but is still taking increments.

Spokeswoman Louise McVicker says: “The impact of low inflation and equity markets in the last year can be seen in the bonus announcements that are being made throughout the industry. We believe our bonus rates are largely in line with the rest of the market.”

Chartwell director Patrick Connolly says: “This is a much bigger cut than other companies. To the best of my knowledge, ScotEq is the worst performer. The high equity content might mean that it can reduce its MVR quicker than other companies.”

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