Standard Life is to stop smoothing except on maturity and will not be paying terminal bonuses on shorter contracts as its slashes with-profits payouts by up to 15 per cent.
The company is warning that payouts will continue to fall over the next year and it will start making bonus declarations every three months, starting in May.
Offering smoothing only on maturity or retirement will adversely affect many policyholders. For a regular-premium pension pol-icy taken out in 1997, Standard has a persistency figure of only 55.7 per cent, according to FSA figures. It has £2m policyholders.
A £50 a month 25-year endowment will now pay out £75,984 on maturity compared with £99,747 last year. In 2001, it would have paid out £110,136.
The company would not comment on its remaining reserves but says the with-profits fund last year lost 12.5 per cent and it now valued at around £30bn.
Despite the cuts, Standard says a with-profits policy would still have outperformed a deposit account or UK unit linked equity fund over 25 years.
The company is mailing IFAs to explain its actions.
Standard Life head of with-profits communications David Hare says: “The last year has taken away some of our advantage but not all. We have always said that smoothing could be reduced or withdrawn.
“We will concentrate smoothing on maturity and retirement – that is what people bought their policy for.”
Needanadviser.com director Ashley Clark says: “This spells the death for with-profits. There is no way I will recommend a product that provides smoothing only on maturity. It is just a managed fund and is not low risk.
“Providers have spent the last 20 years jockeying for position declaring unrealistic bonuses and it is all now coming home to roost.”