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Friends warns of more payout cuts

Friends Provident is slashing payouts on with-profits by up to 20 per cent and warning of further pain to come.

The life office says unless there is a strong recovery in the stockmarkets it will again cut payouts when it conducts a review later in the year.

It says policyholders are still getting smoothing on maturity and surrenders but that this is limited. Friends says the with-profits fund is still run as though it was a mutual and that shareholder considerations have minimal impact. A 25-year £50 a month endowment will now pay out £61,749 compared with £77,096 in March 2002, down by 20 per cent.

The company says it spent a total of £30m on buying IFAs last year, aimed at supporting top-quality IFAs and preparing for the advent of multi-ties.

Friends sold around £1bn of equities last year to bring the equity backing in its with-profits fund down from 54 per cent to 32 per cent by the end of 2001. Friends says it will also apply to the FSA for a solvency waiver.

The company says it has a free-asset ratio of 8.4 per cent, of which 3 per cent is made up of future profits. Friends has market value adjusters in place of up to 27 per cent.

Managing director Ben Gunn says: “The FSA is confident that we are stronger than we appear on a statutory basis. I cannot think of anything other than with-profits that would give you a positive return when the markets have fallen by 24 per cent.

“We think that 30 to 50 per cent of IFAs will multi-tie. The market is developing with a range of options, which is healthy.”

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