Clerical Medical latest to make cuts

British insurer Clerical Medical today announced that it was cutting bonus payments on its with-profits policies, following a similar move by the Royal & SunAlliance (RSA) yesterday.

Clerical Medical, which is part of the HBOS banking group, said regular bonuses on life policies would be reduced to 3% from 4%, while pensions bonuses would be cut to 3.5% from 4.5%. Final bonuses have also been reduced, although the group said the amount varied according to the type of policy, how long it had been held for and how much was in it.

The move means that someone who had paid ?50 a month into a 25-year endowment policy will see the maturity value of their policy fall by nearly 10% to ?68,142 from ?75,595 before today's announcement.

The final value of a pension into which someone had paid ?100 a month for 10 years will be ?14,956 down from ?16,493.

In a statement, Adrian Saunders, actuary at Clerical Medical, said: "We need a sustained stock market recovery to maintain payouts at current levels. In addition, continued stock market volatility may cause us to review bonus rates more often in the future."

With-profits policies aim to smooth out stock market volatility during the course of the investment and are often taken out as pensions or endowment policies to pay off a mortgage.

But three consecutive years of stock market falls have hit the policies and Clerical Medical is the latest in a line of insurers, including Standard Life, RSA, Norwich Union and Prudential, to reduce the bonuses it pays.