Standard Life slashes payouts and delays withdrawals
Standard Life today announced it was cutting payouts on its endowment policies and pension plans and introducing a six-month delay for withdrawals from its property funds, following last year’s stockmarket slump.
Payouts on mortgage endowments have fallen by almost half in the past five years, although the insurer said the value of most of its with-profits plans had recovered since its last bonus announcement in October last year and were still providing some protection from the market storms.
Today’s announcement showed returns on all types of with-profits investments held with the company were negative over the past year, with some losing 14% of their value.
Endowment customers in particular have not fared well. A typical maturing 25-year, £50 a month Standard Life mortgage endowment will now pay out £31,066 – down 18% on the £37,763 an equivalent policy was delivering a year ago.
Someone whose 25-year mortgage endowment matured in early 2004 would have enjoyed a payout of around £60,000 – almost double the present figure.
Meanwhile, a £200 a month pension plan taken out 20 years ago now has a maturity value of £87,095. A year ago an equivalent pension would have paid out £92,735.
Some shorter-term policies have seen smaller cuts. A typical maturing 10-year, £50 a month savings endowment will now deliver a return of £6,415, which is £568 less than an equivalent policy that paid out in January last year.
The company, which has almost 2 million with-profits customers worldwide, said falling payouts were a result of last year’s “extreme investment conditions”, but investors had been sheltered from some market losses.
The insurer pointed out that last year the FTSE All Share index fell by 32.8%. “Obviously, this has had an impact on the assets that back all types of equity-related investments, including with-profits funds. We have therefore made changes to final bonus rates and some annual bonus rates to ensure we continue to treat all our with-profits customers fairly.”
It added: “Many customers continue to benefit from smoothing and the guarantees that apply to their maturity and retirement payouts.”
Property fund delays
Standard Life also announced it was introducing a six-month delay for withdrawals from some of its property funds. Customers who wish to transfer money away from its UK unit-linked life and pension property funds will be placed in a queue for their cash, and will have to wait at least six months before they can get gold of it, unless their policy matures during that period.
The move follows the slump in commercial property values and increasing problems faced by fund managers wishing to sell buildings to pay out to investors, and is designed to give the fund manager time to get the best price for buildings held in the portfolio.
The insurer is the latest to take action to prevent a mass exodus by investors spooked by falling returns on commercial property, with Norwich Union closing its doors to withdrawals last week. Friends Provident, AEGON, Axa and Scottish Widows also have queuing systems in place.
John Gill, managing director of customer services at Standard Life, said the decision was designed to ensure fairness for investors.
“The continued deterioration of the UK commercial property market means we have to introduce some controls over the programme of sales of properties from within certain funds,” he said.
“Whilst this is an established method of dealing with such a situation, we also appreciate it is an unwelcome one for some investors. However, failure to act now would increase the risk of us not being able to achieve the best deal for all investors in the fund, including those who intend to remain invested over the long term.”
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