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Returns on with-profits policies have fallen again for Legal & General's 750,000 endowment and pensions policy holders, mirroring cuts at rival insurers including Friends Provident, Standard Life and Norwich Union.
Investors now find themselves in a far worse position than they were a year ago, and would have been better off cashing in their policies last March and saving the subsequent monthly premiums.
A 25-year £30-a-month with-profits endowment for a man aged 29 when he took out the plan would have had a £40,898 surrender value on 1 March 2008. Now, despite paying in a further £600 in premiums, the plan is now worth £37,594 – 9.5% less. The £200-a-month pension plan holder who had a retirement pot worth £88,214 a year ago now has just £82,785, despite paying in a further £2,400 over the past 12 months.
But the biggest falls are for lump sum single premium with-profits bonds, often sold to retired people to supplement their pensions. They have slumped by around 18% over the past year leading to minimal growth rates over the past decade. A saver investing £10,000 in an L&G bond in March 1999 now has a cash-in value of just £11,224 – equal to an annual growth rate of 1.16%. A year ago the bond was worth £13,645.
The one bright spot is that anyone who took out an endowment to back a home loan 25 years ago will be able to pay the mortgage off in full, and collect a small surplus. A 25-year £50-a-month mortgage endowment maturing on 1 March 2009 will deliver £36,414 – £2,036 above the target of £34,378.
"As a result of large falls in most major investment markets in 2008 and difficult conditions continuing into 2009, it has been necessary to reduce most bonus rates. Our fund fell 18% over the past year," said L&G's Carl Dowthwaite.
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