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| Mixed fortunes for savers
Thursday February 26, 2004
Two insurers announced mixed fortunes for their long-term savers today, cutting the bonuses paid on some policies but holding others at last year's level.
Legal & General said it was cutting annual bonuses paid on conventional endowment policies to 0.75% and 1.25% from 1% and 1.75% the previous year.
However, annual bonuses paid on unitised with-profits life and pensions policies have been largely held at last year's level, while some interim bonuses have been cut and others have been held.
Liverpool Victoria, the UK's largest friendly society, also announced it was reducing bonuses paid on its conventional with-profits policies and maintaining them on its unitised ones.
With-profits are long-term policies which aim to smooth out stock market volatility. They are often taken out as pensions, or endowment policies to pay off a mortgage.
But the funds have been hit by three years of falling stock markets, leaving many endowment policyholders facing a shortfall between the projected maturity value of their policy and their mortgage.
L&G said 75% of people who had bought a mortgage endowment from the firm faced a shortfall in the maturity value of their policy at the end of 2003, with just 25% of policies on track. But Liverpool Victoria today repeated its promise to make up any shortfall between the maturity value of mortgage endowments and their target sum.
Today's bonus announcements mean that someone who had paid £50 a month for 25 years into an endowment policy with L&G will see the maturity value of their policy fall to £53,333 from the £59,047 it would have been worth if the policy had matured a year earlier.
Liverpool Victoria said the maturity value of an ordinary branch conventional with-profits policy into which someone had paid £50 a month for 25 years will fall to £83,945 from £93,503 last year.
It also added that the new 'realistic' accounting regime being introduced by the Financial Conduct Authority was not expected to have any adverse impact on its solvency and capital positions.
Standard Life, which had been locked in talks with the FSA over the impact of the new regime, recently announced it had sold £7.5bn of equities as a result of the regime's introduction because it needed the certainty of returns offered by bonds.