Page last updated at 16:15 GMT, Friday, 26 February 2010

Mortgage endowment payouts fall at the Pru

Payouts are still falling for with-profits investors

The value of maturing with-profits mortgage endowment policies have fallen again at the Prudential, one of the UK's biggest insurance companies.

A £50-a-month policy maturing this May after 25 years will pay out £35,834, down from £37,738 for a similar policy maturing a year ago.

The company's Scottish Amicable policies have seen similar falls, down from £38,707 to £37,635.

The reduced payouts echo those at insurers Aviva and Legal & General.

'Strong fund'

The underlying with-profits fund which supports the endowment policies at the Prudential and Scottish Amicable rose in value by nearly 16% in the past year.

Prudential's with-profits has yet again delivered... good annualised returns
David Belsham, Prudential

"The Pru is a strong fund and is the exception rather than the rule," said Laith Khalaf, a pensions analyst at Hargreaves Lansdown.

"Most other funds don't return anything like this."

However, the continued fall in maturity payouts reflects the fact that much higher investment returns were earned in years gone by, which no longer influence the value of policies maturing now.

For instance, equivalent 25-year polices which matured four years ago, in 2006, were worth £46,892 for Prudential investors and £47,872 for Scottish Amicable savers.

David Belsham, the chief actuary at the Prudential, said his firm was still giving its customers a strong investment return.

"Prudential's with-profits has yet again delivered what we said it would - good annualised returns for our customers over the medium to long-term," he said.

"Our consistent approach to smoothing and bonus setting has served our policyholders well, protecting them from the full impact of volatile investment condition."

Missed targets

The Prudential has 143,000 customers who are paying into its with-profits mortgage endowment policies and 318,000 who are paying into its identical Scottish Amicable policies.

Two years ago all the Prudential and 98% of the Scottish Amicable policies were still on target to pay off the mortgages with which they were associated.

A growing number now seem likely to miss their aim.

Of the 14,871 Prudential policies which matured in the past year, 3,823 (26%) did not meet their repayment target.

The average shortfall, compared to the size of mortgage they were supposed to pay off, was £1,100.

With the Scottish Amicable, just over half of the 37,663 policies that matured last year missed their target amount, though with an average shortfall of only £850.

Bigger falls

With-profits investors with other big insurers, such as Aviva and Legal & General (L&G), have seen worse downturns in their expected payouts.

Two weeks ago the L&G revealed that only 5% of its endowment policies were still on target to hit their mortgage targets.

A maturing 25-year policy, based on premiums of £50 a month, is paying out £34,486 this year, 5% down from the £36,414 payout a year ago.

A year ago, L&G thought that 24% of its mortgage endowment policies would still produce enough to pay off their customers' home loans.

At Aviva, maturity payouts have fallen by even more.

A £50-a-month policy, maturing in January after 25 years, was worth just £27,884 if invested in the insurer's old Norwich Union fund - one of the three with-profits funds it runs.

That payout was 16% lower than last year's of £33,287.

In 1998, at the height of endowment payouts, an equivalent Norwich Union 25-year policy would have paid out just over £100,000 on maturity to an investor.

Nearly all Aviva's mortgage endowments are thought unlikely to hit their original targets.

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