With-profits funds are expected to pay annual bonuses of close to zero in 2013, according to independent consultancy Cazalet Consulting.
Last year, a number of major providers including Aviva, Legal & General and Standard Life either held or cut annual bonus rates for policyholders.
Analysis from Cazalet Consulting shows the average underlying return on the assets backing with-profit policyholders’ asset shares was 9 per cent in 2012. This figure does not take into account tax and charges or the impact of smoothing.
Over the last 10 years underlying investment returns on with-profits funds were 4 per cent.
However, because providers need to hold capital in reserve to support policyholder guarantees, Cazalet Consulting chief executive Ned Cazalet says these investment gains are unlikely to translate into annual bonuses.
Cazalet says: “The impact of life offices needing to cover guarantees embedded in with-profits contracts means that, notwithstanding generally positive underlying investment returns on with-profits funds over the medium to longer-term, bonus rates will remain constrained in most cases, with many providers set to continue to apply reversionary bonus rates of zero or close to zero in the upcoming 2013 bonus declarations for WP contracts with the most onerous guarantees.”