Sun Alliance cuts endowment policy bonuses
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Your support makes all the difference.SUN ALLIANCE has joined the ranks of life insurance companies cutting bonuses paid on with-profit endowment policies and pensions.
Commercial Union and AXA Equity & Law have already announced bonus cuts. Norwich Union, the bell-wether for the industry, is expected to announce large cuts today, followed by General Accident.
The cuts made by Sun Alliance mean that a 10-year endowment policy, taken out by a 29-year-old man paying pounds 30 a month and maturing on 1 January this year, returned pounds 6,005 - pounds 13 less than one maturing a month earlier.
The overall annual returns are hardly changed, with the 10-year policy coming down from 9.9 per cent to 9.88 per cent and the yield on a 25-year policy remaining at 11.9 per cent. Sun Alliance, which has 1.3 million policies in force, expects to pay out pounds 175m on 27,000 with-profits policies maturing this year. Jamie Woods, chief actuary, said: 'It should be emphasised that life assurance continues to provide good real returns for investors' money.'
A substantial proportion of the final payment on policies is a one- off terminal bonus, which is reviewed monthly. The bonus was cut in June and again in October. The 10-year policy bonus was reduced then from 35 per cent to 26 per cent of the sum assured, while the bonus on 25-year policies came down from 312 to 290 per cent. Currently the final bonus makes up 14.5 per cent of the payout on a 10-year policy and 46 per cent of a 25-year policy.
On endowment policies, the annual bonus remains at 3.5 per cent while the bonus on existing annual bonuses, which are added every year, falls from 7 to 6.5 per cent.
Tony Large, actuarial manager at Sun Alliance, said there was no need for home buyers with endowment policies to fear their proceeds would fail to repay the mortgage on maturity. He said such policies relied on only 75 to 80 per cent of forecast annual bonuses being paid and ignored terminal bonuses completely when setting premium rates.
On pensions the bonus on the guaranteed basic sum is reduced from 3.5 to 3 per cent, and the bonus on existing annual bonuses falls from 7.25 to 6.5 per cent.
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