Norwich payouts reduced

The mortgage endowments crisis deepened yesterday when Norwich Union announced fresh cuts in the payouts many policyholders are relying on to settle home loans.

Britain's biggest insurer said final payouts on many conventional with-profits policies such as endowments are being cut by up to 5%. This comes five months after they were reduced by up to 18%.

As a result of the new cuts, a typical maturing £50-a-month, 25-year General Accident endowment will from July 1 pay out £66,394, down from £70,025 in January and £85,518 last August. These figures are for savings endowments; for mortgage endowments the new typical payout figure is even lower, at £63,819.

The equivalent savings endowment payout in January 2000 was £116,839 - illustrating how three years of stock market falls have taken their toll on millions of people's investments.

Yesterday's announcement underlines a warning this week from the financial services authority about the performance of endowments and other long-term saving plans.

Norwich Union has more than 1.6m conventional with-profits policies, most of which are endowments. The cuts will affect many thousands of people whose policies are maturing in the coming months.

They will increase the likelihood that some policies will fail to hit their target amounts and leave homeowners facing shortfalls on their mortgages.

A number of personal pension policyholders will also be affected. A £200-a-month, 20-year Norwich Union Life & Pensions pension plan maturing from next month will deliver a payout of £130,851 -compared with £137,417 at the start of this year.

The insurer said regular bonus rates on both conventional and unitised with-profits policies and final bonuses on unitised with-profits policies would remain unchanged. Its "market value reduction", the exit penalty paid by those who surrender a policy early, has been reduced from an average of 11% to 9% with immediate effect.

Norwich Union's announcement came 24 hours after Standard Life revealed that more than 1m of its 1.4m mortgage endowments were facing some kind of shortfall.