Savings payouts affect quality of retirement

With-profits funds are again under fire as investors are seeing their returns slashed once more. The result could be that many people will see their pensions fail to deliver as hoped, giving them a poorer retirement.

In recent weeks some of the largest insurance companies have cut with-profits payouts for pensions and endowments by as much as 10%. It has been claimed that the cuts in the returns that these funds offer, are more than the reduction in values of the funds, prompting accusations that insurance companies are creaming off the top of funds to boost their own finances, while investors suffer.

An investor saving £50 a month for 25 years might now expect a payout of under £35,000, whereas ten years ago such an endowment policy might have paid around £100,000.

Standard Life recently cut their payout for such an endowment to £34,701 from £37,763 payable in January - a cut of 8.2%. However Standard Life’s fund value only fell by 7.1% in the first half of the year.

It would appear that attempts to ‘smooth’ the results from these policies are not working. The concept was meant to take large changes in payouts out of the equation. One financial expert has claimed that actuaries have far too much discretion over returns than they should.

Standard Life said the recent downturn had affected payouts.

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