Bonuses cut but policies good bet
Your support helps us to tell the story
This election is still a dead heat, according to most polls. In a fight with such wafer-thin margins, we need reporters on the ground talking to the people Trump and Harris are courting. Your support allows us to keep sending journalists to the story.
The Independent is trusted by 27 million Americans from across the entire political spectrum every month. Unlike many other quality news outlets, we choose not to lock you out of our reporting and analysis with paywalls. But quality journalism must still be paid for.
Help us keep bring these critical stories to light. Your support makes all the difference.
Anyone investing in a with-profits endowment or pension policy will be watching the current round of bonus declarations with mixed feelings.
These bonus declarations set the annual bonuses that will be added to all such policies, and the terminal bonuses for policies maturing in the coming year to make up the total final payment.
The bad news is that bonuses are all being trimmed and final payments on this year's policies will be lower than last year's. But the good news is that the returns still look good.
The principle of with-profits policies is that the bonus system smooths out the ups and downs of equity investment. In the good years the policies will lag behind unit-linked policies, which respond directly to rises in the stock market. But in the bad years they will lag behind the changes, and the returns will remain ahead of short-term performance.
Five with-profits issuers have declared their position for the coming year. The cuts bite most deeply in the shorter-term - 10-year - policies. The reductions in final payouts range from 4.2 per cent at Friends Provident to 8.5 per cent at Tunbridge Wells Equitable. But the returns still look good compared with the rocky ride in the equity markets. Scottish Life's policy is paying the equivalent of an annual return of 8.9 per cent, while Tunbridge Wells' and Commercial Union's 10-year payouts top 11 percent.
On 25-year policies the cuts range from 2 per cent at Friends Provident to 5.1 per cent at Tunbridge Wells. But that still brings in a return equal to 13 per cent or more from every provider. Tunbridge Wells comes out on top so far at 13.63 per cent.
This year is unlikely to be the end of the cuts as the insurers have been paying out more than the policies have been earning for several years. They do not want to impose steep cuts and damage the security of with-profits policies, which offer a degree of predictability.
Homeowners using endowments to repay interest-only mortgages could be told to increase their monthly payments to ensure that the final sum is enough to repay the loan.
Vivien Goldsmith
Join our commenting forum
Join thought-provoking conversations, follow other Independent readers and see their replies
Comments