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Widows is first to slash WP bonuses

Scottish Widows has become the first life office to admit to huge cuts in with-profits bonuses by slashing rates on some policies by up to 33 per cent.

The news comes as Skandia claims with-profits payouts will plummet by more than 60 per cent for policies maturing in the next 20 years.

Widows says it is cutting savings plan bonuses because of stockmarket volatility and its desire to preserve its investment freedom by keeping interest and bonus rates in tandem.

The move is expected to be followed by other life offices. Royal & Sun Alliance says its bonuses will be lower than last year while Eagle Star has already made a 0.5 per cent cut and CIS has reduced its terminal bonus.

Last month, the FSA issued a pre-bonus season warning to life offices that they must use prudence when determining bonus returns to ensure payments to policyholders are not jeopardised in later years.

But Skandia senior group marketing manager Peter Jordan says bonus rates will continue to plummet as life offices use terminal bonuses to top up policies. He claims that terminal bonuses now account for more than half of actual payouts.

He says: “What a difference a year makes. People whose policies mature in 20 years time will receive a substantially lower payment than those which matured in 2001. Over half of investment growth is paid on the final day. Investors cannot afford to wait until then to find out what their policy is going to be worth.”

Baronworth Investment Services director Colin Jackson says: “Bonus rate cuts are expected but this is a hell of a lot. Widows is not going to attract any business at this level, the market will not stand for it.”

Widows chief executive Mike Ross says: “With-profits investment smoothes out the effect of stockmarket falls but cannot defy the laws of gravity. It is vital that bonuses are realistic in current and future financial conditions.”

Actuaries attack FSA guidance, p3

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