MILLIONS of savers are being urged to quit poorly performing with-profits funds after Norwich Union, Britain’s biggest insurer, cut endowment payouts by up to 10% and admitted that 90% of the policies it sold to pay off mortgages are falling short.

Donna Bradshaw at IFG, an adviser, said: “If your policy is close to maturity it makes sense to stay put, but otherwise you should get out now, especially as exit penalties on most funds have been cut.”

More than 6m savers still have with-profits policies, though payouts have been falling for the past decade. They are being warned to prepare for disappointment as other insurers follow Norwich Union’s lead and announce falling payouts in the next few months.

Norwich Union, which has 900,000 endowment savers, warned last week that 90.3% are still in the red zone, meaning they are no longer on track to repay their mortgages – an increase from last year, when 89.5% were on condition red.

It runs endowments investing in four funds – Norwich Union, Commercial Union, General Accident and Provident Mutual. All are paying out less than last year.

A typical maturing £50 a month, 25-year Commercial Union policy will from this month pay out £39,321. This is 10% down on the £43,697 paid out on an equivalent plan that matured last year.

Payouts on benchmark 10-year bonds have also fallen. For example, a General Accident bond taken out in 1998 will pay £15,653 this year against £16,753 if it had been taken out a year earlier.

The company has 69,000 mortgage endowments due to mature this year, of which about half are expected to fall short – many by more than £1,000.

Some will receive a helping hand in the form of a payment from an assistance fund launched by the insurer in 2000. Last year Norwich Union paid out £10m as part of its endowment promise and has put aside £1 billion for future assistance. However, it only covers policyholders who were in the red zone in 2000 and depends on the underlying fund reaching certain targets. The fall in payments comes even though the fund in which most of these policies are invested grew by 5.4% last year, beating the 4% gain in the FTSE 100.

Friends Provident also announced a fall in payouts, even though its fund was up 5% in 2007. A 25-year endowment policy maturing this year at £36,425 is 3% down on last year.

There was some good news: both insurers have removed all exit penalties – known as market value reductions.

MVRs were introduced during the bear market to discourage people from leaving the funds before maturity. Many insurers kept these in place even as stock markets soared, but most have withdrawn them in the past year.

Investors thinking of abandoning with-profits endowments or bonds should check they will not incur a tax bill. They should also be careful when choosing other options. It is probably sensible to avoid insurance products and stick instead with straightforward high-interest savings accounts and unit trusts.