Norwich Union endowment, pension and savings bonus cuts

Last week Norwich Union announced it is slashing its with-profits bonuses by as much as 15 per cent on some investments. The news followed an announcement from Friends Provident that its final bonuses would also be cut by 12.5 per cent.

As a result, investors are finding that their pension funds and mortgage endowments are failing to meet their target which is demonstrated in the fact that just 11 per cent of Norwich Union's endowment mortgage policies due to mature in 2009 are on green, meaning they are expected to meet or exceeded their target maturity.

Commenting, Fairinvestment.co.uk's chartered financial planner, Sharon Bratley said: "Once again we see an insurance company cutting both annual and terminal bonuses as soon as the market gets a bit rough. In good years, these companies are supposed to be keeping something back in reserves in order to maintain the bonus rates when times are tough - this is the rationale behind with profits.

"Investors who go into these types of funds are typically more cautious people who aren't expecting massive returns. What they are expecting to see is consistency and not big shocks or surprises. The way that with profits funds are managed these days doesn't appear to fit in with what investors were led to expect when they started their policies.

"With investors under all sorts of financial pressures, realising that the investments that they are relying on for their retirement or to pay off their mortgage are being eroded, just adds to an already stressful time," she added.

Speaking of the options open to endowment and pension holders who are in this position, Mrs Bratley added:

"Investors are now confused as to what steps should be taken. Depending on the type of plan, there are different options open. Pension investors could try switching funds or even transferring the policy to a different company but that is likely to involve penalties, another step to further reduce the value of the investment.

"Endowment holders have more options available to them, in at least the policy can be made "paid-up" where contributions cease and the policy continues, albeit for a reduced amount. Alternatively, endowment holders can surrender the plan or even sell it on the second hand market through a specialist broker, but that option isn't available to all with profits policies. The important thing is to seek independent advice and not to leave it to chance."