THE credit crisis hit with-profits policyholders last week when Standard Life slashed payouts on its plans by as much as 8%. Nearly 35,000 of the 62,700 mortgage endowment customers with policies maturing this year are finding their payouts are not enough to repay the mortgage.

The payout on a £50-a-month mortgage savings plan taken 25 years ago is £34,701, down 8.2% on the £37,763 paid earlier this year.

Meanwhile, 850,000 savers with Scottish Widows were locked into its with-profits fund after the insurer reintroduced exit penalties, a common feature of the last bear market from 2000 to 2003.

Scottish Widows, which is owned by the high-street bank Lloyds TSB, will impose a 5% or 6% withdrawal penalty — known as a market value reduction (MVR) — if you want to get your funds before the maturity date on your contract.

With Standard Life, 55% of mortgage endowment policies reaching their maturity this year are expected to produce less than is needed to pay off the mortgage. However, this figure jumps to 87% when you look at policies maturing in the years ahead.

Margaret Flaherty of Standard Life said: “The challenging financial-market conditions that took hold in the second half of 2007 have continued into 2008. These have resulted in significant falls in value for most types of assets.

“However, we are pleased to say that, despite the volatile economic conditions, values for all types of plan have grown over the past 12 months, with smoothing cushioning the impact of downward market movements.”

The insurer is also continuing to make distributions from its inherited estate. Anyone who began investing (at least partly) in with-profits before demutualisation on July 10, 2006 — and who has remained in with-profits since then — gets an enhanced payout from the insurer’s surplus assets.

Shareholders do not benefit from this distribution.

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