Standard Life has cut the annual bonus rates of 500,000 with-profits customers despite achieving double-digit returns in 2010.
It has reduced the bonus rates on the majority of its unitised life plans from 1.5 per cent to 1.25 per cent. Bonus rates on most unitised pension plans have been cut from 2 per cent to 1.5 per cent. A spokeswoman says this will affect half of its 1 million with-profits customers.
Investors in unitised life and with-profits plans with price growth guarantees have had their bonus rates frozen. The firm’s with-profits funds achieved returns of between 10.8 per cent and 13.3 per cent for the 12 months to 31 December, 2010.
Standard Life with-profits communications manager Margaret Flaherty says the decision will allow the provider to “keep an appropriate level of flexibility” in the amount invested in assets such as property and equities.
She says: “Plan value depends on investment returns on the with-profits assets. In the long run we expect asset classes such as equities and properties to offer better prospects for with-profits payouts. To allow us to keep an appropriate level of flexibility in the amounts we can invest in these asset classes, we’ve decided to change some bonus growth rates from today.”
Hargreaves Lansdown pensions analyst Laith Khalaf says: “In our view with-profits funds are complex and opaque and are best avoided as a home for new investment. Existing investors should consider whether better investment opportunities exist elsewhere, but should always pay attention to the terms of their policy before transferring.”