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Widows cutting projection rates

Scottish Widows is downgrading the projections on its with-profits endowment policies because it no longer believes the FSA-sanctioned rates of return are realistic.

The company says this may mean that more policyholders receive red and amber letters but it says to continue using the FSA projections of 4, 6 and 8 per cent would leave it open to accusations of providing misleading information.

Widows is writing to IFAs this week, telling them it will now be using projections of 4, 5 and 6 per cent for its with-profits endowments, which make up 90 per cent of its book of 220,000 endowments.

Widows is embarking on the second phase of its endowment review, which will take about nine months to complete. It says that with-profits are now much less invested in equities so it is unlikely that a return of 8 per cent can be achieved.

IFAs say the move is sensible in the investment climate and say more life offices should follow its lead rather than continue providing policyholders with unattainable projections.

Widows head of corporate communications Robert Greenshields says: “If the rates being used are lowered, there is a chance that more of those in green will move to amber and those in amber to red. But we believe that these rates are more likely to reflect what is going to be achieved.”

Rickman Tooze financial adviser Colin Thorburn says: “It is probably a realistic reflection of the short-term expectation as to what with-profits funds are going to achieve.”

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