Personal Finance: Don't Panic, Policyholders ; the Cuts Announced in With-Profits Policies Won't Be the Last. but There Are Other Ways to Protect against Endowment Debt Agonies. Paul Gosling Reports

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This week's announcement by Norwich Union that it is cutting bonus rates on with-profits policies follows similar statements from Scottish Widows, Co-operative Insurance and Eagle Star, and many more are almost certain to follow. Pensions and endowment mortgages could be badly affected, and the ability of borrowers to pay their debts.

Norwich Union's with-profits pensions bonus rates this year will be 5.25 per cent, compared with 6.25 per cent in 2001, and savings policies are 4.25 per cent, against 5.25 per cent in last year. This reduces payouts by more than 10 per cent.

Mike Urmston, the chief actuary at Norwich Union, predicts that things will get worse. "Payouts are likely to fall further in the longer term, reflecting anticipated lower investment returns compared to those people enjoyed in the Eighties and Nineties," he says.

Colin Jackson, managing director of Baronworth Investment Services, publisher of a guide to with-profits policies, says: "It's all bad news so far and it will continue to be bad news. But people should not be panicked.

"The only real value of these policies is at the end of their term. If people took out these policies five or six years ago and surrendered them now, they would get nothing." He advises people not to react by surrendering policies.

If they cannot afford to maintain them they should sell them on the open market through a broker such as his own firm. Alternatively you can make them "paid up", which means you add no more to them but wait for them to mature.

Mr Jackson say that attempting to defer retirement in the hope of achieving higher bonuses is probably futile, as well as impossible for most people. "You will end up now getting a smaller pension, but it won't get better in the foreseeable future," he says.

The announcements emphasise that any product based on equities will produce smaller returns when the stock market hits trouble, even with- profits, which are designed to even out performance over a number of years.

John Turton, life and pensions specialist at the Bestinvest IFA, says: "You can't expect to make a silk purse out a sow's ear. The concern that a lot of consumers may have is from a endowment perspective, that they are not going to have enough money to pay for their mortgage. But in a savings plan, where you are amassing money for a later date, you cannot expect to continue making piles and piles and piles of money when we've had the stock market we've had for the past two years. …