Newspaper article The Evening Standard (London, England)

3m Savers Hit by Cuts in Bonus Payments

Newspaper article The Evening Standard (London, England)

3m Savers Hit by Cuts in Bonus Payments

Article excerpt

Byline: PAUL ARMSTRONG;VICTORIA FLETCHER

MILLIONS of families had their savings crippled today after a high-street insurance giant slashed the payments it makes to customers.

Norwich Union and CGNU, both owned by insurance giant Aviva, said the turbulent stock market meant they would have to cut annual bonus payments by up to three quarters of a per cent.

In another blow to homeowners, bonuses on endowment policies will drop by up to 1.25 per cent, and those on maturing policies by between 12 and 20 per cent. The companies say more cuts may follow if markets do not improve.

Experts now warn that other insurance companies could follow suit, devastating savers' investments.

Today's announcement will anger the Aviva companies' 3.3 million customers. It is now thought that annual bonuses offered to new customers in recent years were too large and have precipitated today's belt-tightening.

The decision will affect all withprofits policies, including pensions, endowment mortgages and savings

policies. The companies said annual bonuses will fall from 4.75 per cent to four per cent on with-profits pension products and from 3.75 per cent to 3.25 per cent on life and investment plans. Endowments will be reduced.

With-profits policies, which underpin many savings products, are designed to protect investors from volatile markets by smoothing out returns between good and bad years.

But a stock market slump, eroding the value of insurers' equities assets, has made it hard to keep up bonuses.

Last week, Britannic Group said policyholders may get no bonus. Fears are growing that others, such as Prudential, Legal & General and Standard Life, could follow suit.

Mike Urmston, Norwich Union's chief actuary, said the group would be reviewing its bonus rates more regularly.

"We have not had three bad years in succession like this for over 30 to 40 years," he said.

"The changes we are making are designed to protect the interests of all policyholders and ensure continued financial stability of the fund. …

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