Double talk over true bonus cuts

It really is hard to muster sympathy for life insurance companies, despite the anxious times they are facing. Consider the weasel words some are using to tell policyholders that returns on with-profits endowments and pensions are being slashed.

Clerical Medical, now part of the Halifax Bank of Scotland group, claimed the regular bonus for most of its life policies had been reduced by 1 per cent, to 3 per cent, and on pensions from 4.5 per cent to 3.5 per cent.

This is something of an understatement. Bonus rates have actually been slashed by 25 per cent on endowments and other life insurance savings products and by 22 per cent on pensions. Liverpool Victoria used similar devices in presenting its bonus cuts.

So it's little wonder policyholders feel so let down by the industry. Last week it was on form again over charges on investments, complaining about the 1 per cent annual fee planned by the Government for a new basic investment products following a major review of savings.

Insurers blamed the 1 per cent price cap on existing stakeholder pensions in part for low sales of the products. The modest charge does not allow consumers to receive 'advice', the firms say.

What they really mean is that to sell the pensions the Government has agreed to keep the cap under review, which indicates it could be minded to buckle under pressure from the insurers.

This would be a pity. If stakeholder pensions do not fire savers' imaginations now we're being told that we all face penury if we don't have a private pension, the question to be asking surely is whether this is the right model for addressing the yawning pension gap.

Homeowners are hoping that another cut in mortgage rates will help to make up for the ever-increasing holes in their endowment policies. It might be unwise, however, to count any chickens just yet.

The Bank of England's base rate cut last week was interpreted by some observers as a potential new catalyst for the housing market. But the higher and faster prices rise, the greater the danger they will collapse, just like share prices.

Lenders might reason that one way to help prevent this - but allow other areas of the economy to benefit from the cheaper borrowing - would be to do little or nothing to standard rates: Halifax and Northern Rock are cutting rates by token amounts and Abbey seems miserly in not passing on the benefit of reductions to base rate tracker mortgages until March for existing borrowers. If this means leniency for savers, that would be welcome, but assume nothing. House prices may benefit long term but so will profits.