Scottish Widows has just announced a 1% cut in its unitised with profits bonuses for the coming year. The 1% reduction in regular bonuses will affect both life and pension policies. Whilst there will be no change to bonuses for conventional policies, this is possibly because many are not receiving bonuses at the moment anyway. Final bonuses have also been affected, and could be as much as 4% lower for some pensions. Endowment final payouts have also been affected.
Whilst all of this news seems bad given the stock market rise since March 2003, Scottish Widows have increased some regular bonuses. For example, the Flexible Option Bond Growth Fund bonus has increased by 1% to 5%. The equivalent Income Fund has been raised 0.25% to 4%.
Our View
We have seen Scottish Widows reduce their Market Value Reduction (MVR) by 6% to 10% since 2002 and this is a clear message that values are returning to with profits funds. However, our view is that a full recovery and removal of MVR's will take time and you must account for it for the foreseeable future. Whilst MVR's do not apply on maturity, Scottish Widows has again cut final payouts for endowment policies. This will concern people with endowments linked to their mortgages.
You must take advice if you are in this position. Even a small amount of advice will help you understand all of your options at the earliest possible time. This will give you time to decide.