Selling A Clerical Medical Endowment Policy (F.S.A. Guide )

The cuts, among the most severe so far this year, could increase the chances that some homeowners will face shortfalls on their mortgages.

Yesterday's announcement on bonus rates and maturity payouts affects about 380,000 people holding Clerical Medical with-profits policies such as endowments and pension plans.

The company, part of the HBOS group, said there could be more bad news to come. "We may have to review bonus rates again if the stock market does not show signs of a sustained recovery," said Richard Myers, its appointed actuary.

Somebody with a typical maturing £50 a month, 25-year endowment policy will receive a payout of £55,450 - down 18.6% on a year ago, when the equivalent payout would have been £68,142.

Yet the company's £17bn with-profits fund notched up an investment return of 9.5% before tax in 2003.

Other types of policies have suffered less severe cuts. A typical £100 a month, 10-year pension plan will now deliver a retirement payout of £14,047, a fall of 6% from £14,956 last year.

A spokesman said the large 25-year endowment reductions reflected the fact that "the good years" of the late 70s were dropping out of the equation and that policyholders were also feeling the effect of several years of falling stock markets. He pointed out that Standard Life's 25-year endowment payouts were down 17%-18% over the year.

A total of £569m was added to Clerical Medical with-profits policies in the form of bonuses for 2003, while surrender and transfer values have been improved. A regular bonus of 1.5% - down from 2.5% - will be added to most with-profits bonds, and a bonus of 2% - previously 3% - to pension policies. The company has re-introduced final bonuses on new with-profits bonds.