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Standard cuts with-profits bonus rate for 600,000 customers

by Alex Steger on Jan 30, 2013 at 11:53

Standard Life has cut the with-profits bonus growth rate for around 600,000 customers for the second year in a row.

Investors in Standard Life’s unitised life plans will see their bonus growth rate cut from 0.75% to 0.5% from 1 February. The 0.75% rate was itself a reduction from 2011’s rate of 1.25%.

Customers in Standard Life’s other unitised pensions plans will also see a drop in their bonus growth rate next year from the 1% they will receive on 2012's payouts, down to 0.5% from February 2013.

This rate was also reduced last year from 1.5% to 1%.

A spokeswoman said the rate cuts would allow greater investment flexibility, with an increased focus on equities.

For the majority of Standard Life’s 1.4 million with-profits customers, those holding with-profits bonds, there was no change to the bonus growth rate which remains at 2.5%.

Standard Life’s Heritage with-profits fund delivered a return of 7.9% over 2012.

Margaret Flaherty, Standard Life’s with-profits communications manager, said: ‘We’re pleased to say that customers have seen a year-on-year increase in the value of their plan. In the last year a typical pension customer has seen a return of 7% on their plan while a typical endowment customer has seen a return of 5%.’

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2 comments so far. Why not have your say?

By all means shout about performance over the year - however surely the whole point of with profits is have a certain level of reliable growth year on year, as you head towards retirement. By reducing and reducing the annual bonus the fund looks less and less like with profits and more and more like a typical cautious managed fund - although not like Arch Cru granted!

By undermining bonus rates then advisers and customers alike will have to compare performance to those alternatives and thereby further undermining with profits as an approach.

I am no fan of with profits and appreciate Solvency II etc, but this is another nail in the life companies coffin!

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Short of Understanding

Jan 30, 2013 at 14:34

And the media refuse to take reponsibility for misleading the public?

They return 7.9%, and quotes "and plans have seen a real increase in value from last year."

Yet the headline draws attention to cutting annual bonus rates only. Terminal bonus rates on the other hand will have risen.

And for the hard of thinking, a couple of reasons why insurers have cut annual bonus rates to avoid taking on more guarantee liability: first there is Mr Mervyn King and his increasingly mental QE - driving down the yields on the gilts needed to back guarantees; and second there's the good old FSA and the European regulator who continue to ramp up the capital backing requirements for matching guarantees with any other asset except the aforementioned so**ing useless gilts. Not really either a Standard Life problem, nor a with-profits one, then.

I hope you are wishing you'd not gone for such a facile headline now.

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