The Actuarial Profession’s Life Board says payouts are set to carry on falling, particularly on longer-term policies.
Individuals with policies of 10 years’ duration or less may have already seen the worst of the falls.
But board chairman Nigel Masters says lower returns are a reflection of the ongoing fallout from the 2000-03 equity bear market, low inflation and below-trend yields for gilts and corporate bonds. This has been exacerbated by many life offices being forced to be sellers of equities at the bottom of the market to meet solvency requirements and missing out on the market’s recovery.
This will take longer to work through on longer -term policies which will see bonuses continue to fall for several years, warns Masters, with shorter duration policies more likely to provide stable, if low, bonuses.
However, with-profits ret-urns will remain competitive with other investment products, which are also suffering from the economic climate.
Masters says: “Policyholders are seeing the results of lower returns in terms of reduced bonuses now and, in all likelihood, for several years to come. With a lower inflationary outlook, the real returns from with-profits policies may nevertheless remain competitive with those from other investment choices.”