Standard Life cuts its yearly pay-outs

STANDARD Life, Europe’s biggest mutual insurance group, said today it was cutting annual bonus payments on life and pension policies for 2002 by up to 9.4 per cent because of the downturn in equity markets. Pay-outs on average will fall by eight per cent.

It joined the growing ranks of British insurers forced to reduce payouts because of lower investment returns. The move means policyholders will have less money for retirement or to pay off home loans.

Finance director John Hylands said the company’s life and pension fund saw investment returns fall by about ten per cent last year, which he said was probably the worst performance in the past ten to 15 years.

But he said wasn’t surprised by the result, coming after a long period of high returns.

"To get a year with minus ten when we’ve had lots of years with 15 to 20 per cent returns, shouldn’t be all that surprising," he said today.

Standard Life, Edinburgh’s biggest private sector employer, with more than £75 billion of assets under management, has not cut bonus pay-outs by as much as some rivals. CGNU, the UK’s largest life group reduced payouts by up to 19 per cent.

Mr Hylands said the company, which fought a bitter battle in 2000 with carpetbaggers who claimed it would perform better as a plc, was continuing to attract a lot of life and pensions business, despite the uncertain economic climate.

"That to some extent may reflect that people are moving to a strong, well-established company and perhaps a mutual company," he added.

In December, Standard Life reported an unprecedented 61 per cent jump in new business sales for 2001, outperforming its main UK rivals.

"The returns available from investing in the stock market last year were poor. However, we have been able to reduce the impact on bonuses. Although pay-outs will be lower than last year’s by an average of eight per cent, we expect them to be very competitive and to compare extremely favourably with pay-outs on contracts under which benefits are linked directly to stock market levels," said Mr Hylands.

The announcement is the second major statement in as many days from the Edinburgh life market.

Yesterday, rival Scottish Widows - now in the hands of Lloyds TSB - told the market it is set to pay out £1.4 billion to meet promises to thousands of guaranteed annuity rate policyholders, who will see their pensions rise by 30 per cent as a result.