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Pearl scraps annual bonuses for 2m

Endowment payouts cut by 25% as AMP reveals 333m loss

Rupert Jones
Wednesday January 22, 2003
The Guardian

Insurance group Pearl yesterday scrapped 2002 annual bonuses for two million policyholders to "protect the long-term interests" of customers.

It has also cut payouts on many maturing endowment policies by almost 25%.

Pearl is the latest of a number of insurers to announce cuts in bonuses and payouts in recent weeks. Nearly a fortnight ago Britannic said its policyholders might not receive any annual bonus for 2002.

The cuts to bonuses came hours after Pearl's Australian owner AMP said it expected a net loss of about A$900m (333m) after exceptionals for 2002. Last month AMP announced it was cutting 1,900 jobs in Britain.

Of its 2.4m with-profits policies, 2m are not receiving any annual bonus. This includes 400,000 conventional with-profits endowment policies and 600,000 personal pension plans. A typical endowment-holder received an annual bonus of 2.25% for 2001.

AMP said it was taking this action in order to strengthen the with-profits fund and protect policyholders.

Peter Carr, chief actuary for AMP's UK financial services division, said: "The life industry is experiencing turbulent times and we believe a prudent approach is necessary to ensure the long-term stability of our with-profits funds."

He added that all policyholders with maturing Pearl endowments would still benefit from final bonus payments.

Meanwhile, annual bonuses on the 400,000 unitised with-profits policies, which includes investment bonds, have been reduced.

The 650,000 policyholders with insurer NPI, another part of AMP, will be relieved to find that their bonus cuts are a lot less severe. They will typically see their annual bonus reduced by half a percentage point to between 3.5% and 5%.

Some holders of maturing NPI self-employed retirement plans and conventional with-profits executive pension plans will not be getting an annual or a final bonus. As many as 120,000 policies could be affected. They are not getting bonuses because "there are substantial guaranteed benefits that already exceed the value of the assets invested," said a spokesman.

As well as reducing bonus rates, the two insurers have cut payouts for maturing policies, in some cases by almost a quarter. This means many people will receive thousands of pounds less than they were expecting and will increase the likelihood that some homeowners will face shortfalls on their endowment mortgages.

Someone with a typical maturing 25-year, 50-a-month Pearl endowment policy is now looking at a payout of 62,113 - 23% down on the 81,124 he or she would have received a year ago.

Investors who paid a one-off 10,000 into an NPI personal pension 20 years ago would now be in line for a payout of 84,579 - 24% down on the 112,007 they would have got at the start of 2002.

Meanwhile, Britain's biggest insurer Aviva yesterday said worldwide new business sales of life and pensions products rose 2% to 2.37bn last year - at the top end of analysts' expectations. But Richard Harvey, chief executive, warned he expected the "difficult market conditions" to continue this year, adding: "Some markets may contract further in the short term."

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