Clerical Medical is the latest provider to announce cuts to with profits bonuses for investors.
Apparently, bonus rates for with profit investment bonds will be reduced by 1%. The with profits income fund will remain at 4.5%. Regular bonuses for life policies have reduced to 1.5% and to 2% for pensions.
Clerical Medical's actuary said: "although the equity markets have risen by about 11% over the past year, it is still over one-third lower than its 1999 peak. We may have to review bonus rates again, if the stock market does not show signs of a sustained recovery".
Our View
Clerical's view is very similar to other providers also cutting bonus rates. We do need to see some sustained growth in order for bonus rates to remain static or even increase.
Clerical are visibly being fair to their customers in terms of Market Value Adjustment penalties that are being charged when policies are cashed in. Those people that have taken policies out in recent years are being penalised less than those from earlier years. This is because those people that invested in earlier years may be receiving more than their fair share of the investment pot.