Royal London is warning that with-profits will die and funds will close if proposed regulation is not substantially altered.
Group chief executive Mike Yardley says: “If the proposed rules are not fundamentally changed to reflect the realities of managing with-profits funds, many life companies will have no option other than to close their with-profits funds to new business.”
Royal London has cut annual bonuses on conventional with-profits endowments from 1 per cent to 0.5 per cent on a 10-year term and from 3 per cent to 2.2 per cent on a 25-year term. Final bonus rates fall from 7.5 per cent to 6.5 per cent on a 10-year policy and from 327.5 per cent to 277.5 per cent on a 25-year policy.
The payout on a 25-year policy for a male aged 29 paying £50 a month falls to £78,189 from £87,543 last year. The payout represents a net yield of 11.5 per cent a year, down from 12.2 per cent.
Subsidiary Scottish Life's with-profits endowment annual bonuses stay at 0.25 per cent while final bonuses fall to 7 per cent from 13.5 per cent on a 10-year policy and to 50 per cent from 88.5 per cent for a 25-year policy.
The payout on a 25-year policy for a male aged 29 paying £50 a month falls to £55,196 from £73,246 last year. This represents a net yield of 9.2 per cent a year, down from 11.1 per cent.
Annual bonuses remain at 0.25 per cent for conventional with-profits individual pensions while final bonuses are cut on regular-premium policies to 17 per cent from 21.5 per cent for 10-year terms and to 27.5 per cent from 47.5 per cent for 20-year terms.
A conventional Scottish Life with-profits individual 20-year regular-premium pension for a male retiring at 65 and paying £200 a month will pay out £163,043 down from £203,817 last year, representing a net yield of 11 per cent a year, down from 12.9 per cent.