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Last Updated: Thursday, 29 April, 2004, 17:38 GMT 18:38 UK
Norwich Union cuts savers returns
Investment returns are to be cut
Up to one and half million Norwich Union with-profits investors face cuts in the returns on their investments.

The UK's biggest insurer is to hold onto 0.75% of investment returns earned on its with-profit fund this year.

The insurer is reducing returns so that it can comply with new Financial Services Authority (FSA) rules.

The rules are meant to ensure that with-profit funds are on a strong enough financial footing to meet all guarantees to investors.

Stark choice

In future, insurers will have to show that they can meet all their obligations without relying on strong rises in share prices.

Some insurers have already moved money from shares into low-risk investments, such as government bonds, to ensure that their with-profits funds have enough assets to meet the FSA rules.

Norwich Union said that the new rules presented them with a stark choice.

"In a nutshell, we either reduced the number of shares held in the fund or we introduced this charge," David Riddlington, Norwich Union spokesman said.

"Overall, we believe it is in the long term interests of the investor if the with-profits fund remains invested in shares," Mr Riddlington added.

Norwich Union have promised that should the with-profits fund perform well over the next few years then they would pay the 0.75% charge back to investors.

The charge, coupled with lower growth predictions for investments, means around 750,000 endowment mortgage holders are facing the prospect of a smaller payout when their policy matures.

Norwich Union said these new predictions will be included in the next set of endowment projection letters, which will be sent out in the summer.

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