Friends Provident has decided to cut its conventional and unitised with profits bonus rates. According to the insurer, the values of its with profits policies still exceed the actual value of the investments they are based on. This technically means that Friends Provident would end up paying out more to policyholders than the fund is actually worth. Whilst there will be no change to regular bonuses for conventional with profits policies, regular bonuses for some unitised policies will be reduced. Conventional policies have been affected at maturity, with final payouts falling by around 3%. Friends Provident's managing director said, "this is about being fair to our policyholders now and into the future. It is therefore essential that we set regular bonus rates that reflect future expectations and the level of guarantees already provided".
Our View:
We are genuinely surprised at this move from Friends Provident, especially when stock markets have taken a turn for the better recently. However, according to Friends Provident, the returns made on their investments are still not enough to allow bonus rates to stay the same. Friends Provident seem to be taking a cautious view for the future of with profits and policyholders need to understand what the insurer's stance is and how it affects them. If you have Friends Provident with profits policies, it would be wise to check how you have been affected. This is especially important if you have a with profits policy (such as an endowment) that is used in connection with a mortgage or loan. Lower bonuses and lower payouts may mean that your target amount is not reached and you may need to make alternative arrangements. Need some advice? Visit the Help Zone to find about all the different ways we can help you. Low cost guidance? Try the Ask An Adviser Service.