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Mid-year cuts by R&SA as NU reduces its MVR

Royal & Sun Alliance is slashing the bonuses of one million with-profits policyholders in mid-year with payouts on conventional with-profits reduced by 10 per cent and annual bonus rates on unitised with-profits cut by 1 per cent.

But Norwich Union is reducing its MVR from 11 per cent to 7 per cent in response to the small upswing in stockmarkets. The 5 per cent payout cuts made in July remain.

Life companies traditionally only review bonus policy annually but the stockmarket slump has brought mid-year changes. R&SA has hit back at claims that only it and Equitable Life have cut annual bonuses in mid-year. Axa, Friends Provident and Norwich Union have all made mid-year cuts to their annual bonuses this year. Equitable suspended its annual bonus in 2000.

An R&SA 25-year £50 a month endowment will now pay out £70,746 compared with £78,705 previously. Annual bonus rates will range from 2.5 to 4 per cent.

R&SA UK life public relations manager Jay Aitken says: “It really reflects the difficult market conditions. It is important that bonus rates reflect the low-inflation, low-interest-rate environment. We are not cutting terminal bonus on unitised with-profits. Cutting annual bonuses gives us more flexibility as annual bonuses have to be reserved for.”

NU senior actuary David Riddington says: “We are responding to the fact that the market seems to have sustained an upward movement. Many companies are wary about doing too much too soon.”

Informed Choice managing director Nick Bamford says: “I am always keen to see how quickly providers respond to positive movement in the market. In a time of negative investment returns, bonuses can only come from previous returns or reserves.”

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