Standard Life cuts endowment payouts

Standard Life today announced fresh cuts to payouts on its endowment policies and pension plans, despite the stockmarket's strong showing last year. The company also warned there was a high risk that 97% of its mortgage endowment policies would not pay off customers' home loans. While that figure will shock some investors, the company pointed out this was a slight improvement on the position a year ago when the figure was 98%. Standard Life said most of its with-profits customers would see a year-on-year increase in the value of their policies, and that many of these had outperformed regular savings accounts. But some investors are likely to be disappointed with the returns they have received, bearing in mind the 22% rise achieved by the FTSE 100 index last year. A typical maturing 25-year, £50-a-month Standard Life mortgage endowment would now pay out £26,869 – down 13.5% on the £31,066 an equivalent policy was delivering a year ago. Someone whose 25-year mortgage endowment matured in early 2004 would have enjoyed a payout of about £60,000 – easily more than double the present figure. A £200-a-month pension plan taken out 20 years ago now has a maturity value of £82,301 – down from £87,095 a year ago and £92,735 two years ago. Standard Life has about 1.4 million with-profits customers, around 600,000 of who hold mortgage endowments. It said that the section of the with-profits fund linked to this type of policy notched up an investment return of 6.2% last year. This reflects the fact that shares made up just under a third of this part of the fund. By contrast, a customer holding a Standard Life with-profits stakeholder pension plan enjoyed a return of 19% last year, reflecting the 60% equity holding in this section of the fund. Patrick Connolly of financial advisers AWD Chase de Vere said Standard Life had been one of the most consistent with-profits providers in recent years. "While their investors will not be exactly jumping for joy, they may at least be pleased to see bonus rates maintained and exit penalties reducing," he added. The group said 97% of the its mortgage endowments were now in the "red" zone, where there is a high risk they will not pay off the loan they were bought to cover, with the other 3% either "amber" (signalling a significant risk of a shortfall), or "green" (meaning they are on track to reach their target). However, it added that regular bonuses were being maintained at current levels for more than 1m unitised and conventional with-profits plans. Two weeks ago, Britain's biggest insurer, Aviva, announced fresh cuts to payouts on some of its policies.