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Norwich Union cuts bonuses by 15% as 94% of mortgage endowments hit red alert

19 January 2009 / by None
Norwich Union last week announced that from January 1, its final bonus rates have been cut by up to 15 per cent.

The measures come amid economic turmoil that is forcing with-profit fund providers to slash their bonus rates.

The announcement comes just days after Friends Provident slashed the final bonus on 25-year endowment policies from 17.5 per cent down to five per cent.

A process called smoothing is behind the cuts as providers prepare for tougher times ahead by cutting bonuses which will enable them to continue to pay a bonus despite tough economic conditions.

As a result, a 25 year, £50 a month Norwich Union endowment mortgage maturing on January 1 2009 is now worth £42,322, compared to the £45,911 a 25 year policy would have matured at in 2008.

Pension funds with Norwich Union have also been affected, as a pension with £200 invested over the past 15 years with a retirement date of January 1 2009 will pay out £53,708 compared to the £59,691 it would have paid out had it natured last year.

The announcement from Norwich Union, part of the Aviva group, also highlighted the number of endowment holders who are expecting a shortfall. The figures show that just six per cent of policies are on 'green' meaning they are on target, while 94 per cent are on red, meaning they are in danger of receiving a shortfall.

Commenting on the announcements, personal finance campaigner at Which?, Dominic Lindley said: "This is yet more bad news for Norwich Union's long suffering with-profits policy holders, who will be disappointed by the cuts in final bonuses."

However, David Barral, director at Norwich Union argues that the bonuses continue to benefit policy holders despite the rate cut: "Our with-profit funds have continued to prove their worth by delivering attractive long-term returns for investors while protecting them from the ups and downs of the stock market."

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