Policy payouts are to fall 7% on average.

Payouts on policies will fall by 7% on average, despite a 14% rise in the value of the with-profits fund in 2003.

It is the fifth time in two years Standard Life has made cuts and follows an announcement that the insurer is considering a stock market flotation.

Standard Life blamed the reductions on poor stock market performance, despite a rise in share prices during 2003.

Focusing on the future

With-profits policies are designed to smooth out the peaks and troughs of stock market volatility.

Over the long term investors have done very well out of our with-profits fund Standard Life spokesperson

Profits made in good years are kept in reserve to pay investors an annual bonus even when the stock market performs badly.

Slumping share prices throughout 2001 and 2002 forced most firms to trim bonus rates on their policies.

Standard Life came in for criticism for sticking with stock market investments during 2001 and 2002.

The insurer argued that shares outperformed other investments over the long term and that policyholders would feel the benefit when the stock market recovered.

How bonus cuts hit savers An investor paying �50 a month into a 25 year endowment policy will see the final maturity value fall from �69,386 to �62,603 An investor paying �200 a month into a pension for 20 years will see the final maturity value drop from �155,536 to �143,080 Source: Standard Life

However, Standard Life told BBC News Online that the stock market recovery in 2003 had not been strong enough to turn the tide of bonus cuts.

"In truth, one good year followed three very bad years," a Standard Life spokesperson said.

"We set payouts to allow the fund to meet its objectives over twenty years.

"Over the long term investors have done very well out of our with-profits fund."

Share float?

The move to cut bonuses again is bad news for Standard Life endowment mortgage holders, with substantial numbers already facing a shortfall in the projected maturity value of their policy.

The bonus cut comes only two weeks after the insurer said it was considering floating on the stock exchange.