Standard Life holds with profits bonus rates

Standard Life has become the latest life office to freeze bonus rates for its with-profits policyholders, with investors seeing a wide variation in the returns on their plans.

In making its seasonal with-profits declaration, Standard Life said regular bonus rates for more than a million of its conventional and unitised with-profits policyholders would be maintained.

However, the provider said that most customers would see increases in their plan values as it would pay “final bonuses on many unitised with profits plans”. The exact level of bonus would depend on the type of plan and its payment history, said Standard Life.

The provider said that fewer with-profits plans now had Market Value Reductions (MVRs), which are designed to deter customers from encashing their long term policies before maturity.

Those MVRs that remained had been reduced, said Standard Life. These penalties had been removed on with profits bonds taken out between September 2001 and November 2005.

“We are pleased to say that most customers will see a year-on-year increase in the value of their plan,” said Margaret Flaherty, Standard Life’s with-profits communications manager.

“While returns from equity markets have improved they are still some way off recovering from the proceeding downturn.”

With profits providers invest in a range of assets including equities, fixed interest and property.

Standard Life has seven different types of with-profits plans and the performance of each policy class varied widely depending on its equity exposure.

The with profits stakeholder pension fund saw a near 20 per cent gross return in 2009, with two-thirds of these assets invested in equities.

This contrasts with the performance for Standard Life’s unitised life fund which, with a 13 per cent equity exposure, recorded a 3.6 gross return last year.

“Other classes of investment such as fixed interest and property delivered lower returns in 2009 than equities,” said Flaherty.

Pension analysts said the performance of Standard Life’s with profits fund at 8.9 per cent was ahead of its competitors who had reported recently, yet their annual bonus of 2.5 per cent was at the “lower end”.

“The difficultly for the investor is to tell whether the sum retained will result in a better final bonus or is just building up reserves following under-performance of the fund,” said Adrian Lowcock, Senior Investment Adviser, with Bestinvest, the independent financial advisers.

“This lack of transparency and the fact that final bonuses are often only declared once every six months means investors struggle to know when is the best time to cash in the investment.”

Standard Life is the second life office to hold regular bonus rates this year, in spite of a sharp rebound in equity markets.

Earlier this month, Aviva, the country’s largest insurer and life office, announced that it was maintaining and, in some cases, cutting regular bonus rates for its with-profits investors.

In contrast, Equitable Life, another provider, said it would increase the value of its with-profits pension policies by 5.5 per cent, with the reintroduction of an interim bonus and a one-off increase in policy values.