Scottish Widows cuts bonuses

Scottish Widows is cutting some bonuses by 33%

Scottish Widows, one of the UK's biggest Life Insurers, is to cut bonuses on its with-profit policies by as much as a third; a move that experts predict will trigger a raft of similar cuts by other life companies.

The insurer, which manages about £80bn in funds, is to cut the annual bonus on its Regular Saving Scheme by 1.5 percentage points, from 4.5% to 3%.

It blamed two years of poor stock market performance and low interest rates for the cut.

With-profit policies are used by many people as a means of saving for their retirement.

The funds are designed to cushion investments against market fluctuations by holding returns over from good years to top up performance in lean times.

Poor performance

In a statement, Scottish Widows said: "Over the last few years the UK has seen a period of low inflation in tandem with low yields on fixed interest stock.

"This has lead to an expectation of lower investment returns in the future.

"If regular bonus rates are consistently set above those interest rates, then the level of guarantee will build up significantly in excess of the assets available to meet them and, as a consequence, investment freedom will slowly be eroded."

More to come

Independent financial advisers are predicting that other Life Insurers will follow Scottish Widows lead.

Both Norwich Union and Prudential are tipped to announce cuts to the bonuses on their with profit funds in the near future.

Colin Jackson of financial advisers Baronworth Investment Services, said: "Its just a case of competition. If one of the big boys cut their rate then others feel less pressure to maintain their rates."

Earlier this month, Co-operative Insurance Services announced it had cut final bonuses on its with profit funds by 5% year-on-year.

Meanwhile, Royal SunAlliance announced it would no longer sell with profit funds.