Mortgage endowment customers hit as Standard cuts bonuses

Standard Life has dealt its 2.4 million with-profits policyholders a fresh blow by cutting payouts by an average of 7%, slashing bonuses and warning more bad news is to come.

By contrast, rival insurer Clerical Medical announced that most of its policies should see higher payouts this year. Standard Life's cuts affect holders of endowment policies, pension plans and investment bonds. This is the sixth round of reductions in two and a half years and will mean many people receiving thousands less than they were expecting.

A maturing 25-year, £50 a month savings endowment policy will now pay out £51,220, down from £56,873 in the summer and £62,603 a year ago. This is less than half the £110,000 an equivalent maturing 25-year endowment was delivering five years ago. The insurer argued that such comparisons were unhelpful because the figures related to different periods.

For mortgage endowments, the new typical payout figure is lower, at £49,511. But other policies have suffered less severe cuts. The payout on a typical maturing 10-year, £50-a-month mortgage endowment is down £93 to £7,271.

A spokesman said while payouts were typically 7% lower, some people would escape with cuts of just 1% while others would suffer reductions of as much as 10%.

Standard Life has also taken the axe to the annual bonuses added to so-called conventional with-profits policies. For pension plans, the bonus added to the "sum assured" has been cut from 0.75% to 0.25%. But unlike some of its rivals, it is giving an annual bonus to all its policyholders.

The company's with-profits fund notched up an investment return of 10.4% before tax in 2004, and a spokesman said its payouts continued to stand up well against other types of long-term investments. The firm said "the trend towards lower bonus rates and payouts will continue in the foreseeable future, even if equity markets continue to recover steadily".

Clerical Medical said more than three-quarters of its policies would see higher payouts this year. About 400,000 people hold its endowments, pension plans and other with-profits policies.