NORWICH UNION, the UK arm of the insurance group Aviva, yesterday cut payouts on 1.6 million policies for the fourth time in 18 months, in a move that will lead to a fall in the value of pensions, endowments and savings.

The insurer said it was cutting payouts on all conventional with-profits policies by 5 per cent, despite an upturn in equity markets since its last reduction in January. The cuts will affect policies that mature from next month onwards.

Mike Urmston, chief actuary at Norwich Union, said: “On conventional policies that have matured in 2003, we have been paying out about 118 per cent of what has been earned, so some further adjustment to payouts is necessary for overall fairness.”

The group took advantage of market rises to lower the exit penalty applied to policies taken before their maturity date, from an average 11 per cent to 9 per cent.

The latest slide in maturity values means that the value of a 25-year endowment policy held in Norwich Union’s CGNU with-profits fund, into which £50 a month was paid, will fall from £70,025 to £66,394. Eighteen months ago the policy would have been worth £89,979 at maturity.

Norwich Union’s decision was interpreted as evidence that rising stock markets will fail to halt the slide in the value of with-profits policies. Analysts say heavy falls in insurers’ assets mean it will be years before rising returns can be passed on to policyholders.

Mr Urmston gave little hope that payouts would increase in the near future. “On the longer-term conventional policies we will have to see payouts more in line with asset share as the higher investment returns of the past are replaced by the lower level of returns we are now seeing.”