Thousands likely to face worsening mortgage shortfall

Just three weeks after it slashed policy bonuses and payouts, Standard Life yesterday dealt its 2.3m with-profits policyholders a new blow with long-suffering endowment holders hit hardest. The company said yesterday that it will lop up to 0.75% off whatever annual return it makes in future years to pay for the guarantees that some customers enjoy.

But the 700,000 or so pension holders who are guaranteed a minimum return of 4% a year are not being spared the pain. Yesterday Standard Life said that the "equity backing ratio" - the proportion of a policyholder's money that is invested in shares and property - for these people has been slashed to just 30%, with the rest invested in bonds. If the stock market was to stage a rally, they won't benefit fully. It could be argued they have effectively been told not to expect much more than 4% a year and many may feel they would get a better return elsewhere.

The insurer is recalculating projections for policyholders based on the new growth rates - and in some cases they don't make very pleasant reading. It has removed a controversial mutuality bonus so that the "anticipated benefits of mutuality" are no longer included in the projections given to customers.

And it yesterday gave full details of the amounts it will be lopping off policy values to reflect the cost of providing guarantees. These reductions from the yearly growth rates range from 0.25% for with-profits bonds to 0.75% for older conventional with-profits mortgage endowments and conventional with-profits pensions. For most mortgage endowments taken out since 1992 the deduction will be 0.5%.

The changes could worsen projected mortgage shortfalls for many thousands of homeowners with Standard policies backing home loans. The firm said a 25-year mortgage endowment going for 15 years, where the target amount is £31,598, would see the expected payout fall from £21,923 a year ago to £19,852.

A male customer with a 20-year unitised pension policy that has been running for five years, will see the estimated value on maturity fall to £76,706, compared to £87,002 a year ago. However with the 4% guarantee that he had been offered, the company will have to boost the pay-out to £78,296.