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NU slashes bonuses as smoothing hits the rough

Norwich Union is cutting terminal bonuses by up to 5 per cent across all

its with-profits policies.

NU says it has been forced to make the cuts because the effects of poor

stockmarket performance are so great that they cannot be smoothed out.

Returns on NU&#39s funds are down by 7 per cent for the first half of this

year and it says reducing terminal bonuses will bring maturity payouts into

line with fund returns.

The cuts follow similar moves by Equitable Life, which made a drastic 16

per cent reduction to terminal bonuses, and Scottish Widows, which slashed

terminal bonuses by up to 6 per cent.

Widows and Scottish Mutual have also cut reversionary bonuses by 0.5 per

cent mid-term but NU has no plans to follow suit.

NU says it is trying to operate a policy of openness on bonus cuts. It is

communicating with IFAs and policyholders this week to explain why it has

taken this action.

NU has also been applying a market value adjuster to unitised with-profits

policies. This will still apply but will be reduced. The terminal bonus

rates will be reassessed at the end of the year.

Senior actuary David Riddington says: “This is not a kneejerk reaction.

This is about ongoing balanced and prudent management of with-profits. We

are managing our fund within the criteria we set out at the start of the

year. There is a limit to how much we can smooth and the current equity

markets have taken us beyond those limits.”

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