Scottish Widows policyholders are set to benefit from bonuses of more than £500m added to with-profits policies in 2002, despite the third consecutive year of negative stock market returns.
Mike Ross, chief executive of Scottish Widows, says: “The last three years have seen unprecedented sustained falls in stock market levels, which – together with lower interest rates – have affected the returns on most types of investment.
“Even those such as fixed interest and property which have recently provided better returns than equities are typically earning lower returns than were available in earlier years.”
Despite the negative overall returns, smoothing of investment returns has meant that policy payouts at maturity are currently higher than the levels earned by underlying investments. As a result, maturing with-profits plans have been typically less affected by the recent stock market falls than funds directly linked to the stock market.
Policy payouts continue to show good overall returns over the longer term. Scottish Widows says a 25-year endowment policy for £50 a month started by a 29-year-old man on January 1 1978 would have paid out £60,004 on January 1 2003 – a return of 9.8% a year.