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Prudential cuts endowment payouts for 2.5m

Rupert Jones
Tuesday December 3, 2002
The Guardian

Prudential yesterday cut payouts on maturing with-profits endowment policies, investments and pension plans in a move that will affect 2.5m people.

The company is reducing payouts on Prudential and Scottish Amicable policies by up to 7%, which means some investors will receive thousands of pounds less than they were expecting. It is the third time this year that the insurer has chopped policy values.

The cuts increase the likelihood of the 700,000-plus homeowners with Scottish Amicable endowment mortgage policies facing shortfalls.

Also affected are 340,000 holders of Prudential's with-profits prudence bond and hundreds of thousands of personal pension investors.

The cuts take effect today and will hit people with maturing policies or those who decide to cash in their investments early.

Prudential blamed the decision on the continuing depressed levels of world stock markets, saying: "This is a prudent move to protect the strong financial position of the fund and customers' ongoing investments."

The effect of this year's three final bonus rate reductions means policy maturity values will typically have fallen by about 12%, said a spokesman.

The latest cuts will mean someone who invested a lump sum of £10,000 in a 10-year prudence bond would see their final payout reduced to £20,916 from £22,415 before yesterday's announcement. Prudential also gives the example of a £200-a-month personal pension plan taken out 10 years ago, which will pay out £32,487 compared with the £33,707. Annual bonus rates currently being added to policies are unaffected.