Life offices have stunned IFAs by slashing with-profits reversionary bonus rates despite last year's rocketing stockmarket.
The fall is said by life companies to have been brought about by the continuing trend towards lower inflation, lower interest rates and the approach of Emu.
Life offices are also pointing the finger at the Government's decision in last July's Budget to axe tax credits on dividends.
But last year saw a 24 per cent rise in the UK stockmarket and some analysts, including traded endowment mar- ket-makers, believe there is a more sinister reason for the sudden reduction in bonus rates. They claim this marks the end of a 15-year battle for business in the with-profits market. It is alleged that, during that period, bonuses were artificially inflated by life offices to boost business.
Despite the cuts, payouts for 10- and 25-year endowments have increased in some cases by up to 7.6 per cent.
Tep market-maker Beale Dobie believes the drop in reversionary bonus rates shows that life offices are falling back in line with the underlying value of assets.
Joint chief executive David Beale says: "We believed that some companies had overpaid in the late 1980s and early 1990s. In all cases, we expected little or no change in reversionary bonus rates, which we believe are at sustainable levels in relation to current investment conditions."
Scottish Provident is one of the few life offices which has declared that it will maintain reversionary bonuses for life policies.
Scottish Life, General Accident Life, Norwich Union, Friends Provident and Scottish Provident have all slashed with-profits reversionary bonus rates on pension policies.
Scottish Life has cut its reversionary bonus on basic pension benefits for regular-premium contracts to 2 per cent from 2.25 per cent. It has maintained its bonus on declared bonuses at 4.5 per cent.
Friends Provident has cut its life policy reversionary bonus to 2.75 per cent from 3 per cent on the sum assured. Accumulated bonuses fall to 4 per cent from 4.5 per cent.