Standard Life has slashed the value of its with-profits mortgage endowments by 17.7 per cent.
In its annual with-profits bonus announcement, released today, Standard Life reveals that its with-profits mortgage endowment plans maturity values have been cut by almost 18 per cent since last year.
In January 2008, a 29-year-old man paying £50 a month into a conventional with-profits endowment mortgage plan over 25 years would have seen a maturity value of £37,763.
Now, the value of the same plan has dropped £6,697 to £31,066 - a cut of nearly 18 per cent.
The same man paying £50 a month into a 20 year policy has also seen a massive reduction in maturity vales, from £22,296 in January 2008 to £18,889 now – a cut of more than 15 per cent.
"Standard Life regularly reviews bonus rates and payouts on its with-profits business to ensure that its with-profits customers are receiving a fair return on their plans, taking account of the investment returns on the assets of the with-profits fund," said Standard Life.
"At this review we have reduced some bonus rates which will impact payouts for many customers."
Margaret Flaherty, With-Profits Communications Manager at Standard Life says 2008’s "extreme investment conditions" have forced the decision.
“2008 was a poor year for investment returns, with the FTSE All Share Index falling 32.8% over the year," she said, "obviously, this has had an impact on the assets that back all types of equity-related investments, including with-profits funds.
"We have therefore made changes to final bonus rates and some annual bonus rates to ensure we continue to treat all our with-profits customers fairly."
Commenting on the announcement, James Caldwell, director at Fairinvestment.co.uk said: "It is the same old story – as soon as the market gets a bit tough, insurance companies cut bonuses for their policyholders.
"The underlying principle behind with-profits is that firms keep something back when the times are good so that they can maintain the bonus rates for their customers when things aren't going so well.
"The type of people who go for with-profits funds are generally fairly cautious, which means they are not looking for massive returns, usually just for the maturity value to be enough to pay off their mortgage, but it seems that the way these with-profits funds are being managed doesn't tie up with what investors thought they were signing up for."
Mr Caldwell said that there are options available to people concerned about their policies such as surrendering the policy or selling it on the second hand market, urged anyone who is concerned about their endowment to get independent endowment advice before taking any action.
© Fair Investment Company Ltd