Hibernian Life & Pensions, one of the State's largest life assurers, has cut bonus payments for 2003 to around 85,000 policyholders. The reductions are across its with-profits products and are part of a series of cuts announced yesterday by its parent company, Aviva.

The annual bonus rate on standard unitised with-profit policies at Hibernian was cut to 3.5 per cent for 2003, down from 5 per cent in 2002. Policyholders with a unitised with-profit pension will see returns cut from 5.25 per cent last year to 3.75 per cent in 2003.

Maturity payouts on pensions have been hit by the cuts. Hibernian policyholders who contributed the equivalent of €150 a month for 20 years into a personal pension will receive a payout of €135,533, compared to €159,407 if they had retired and cashed in their policy before the end of 2002.

A spokeswoman for Hibernian said many pensionholders would have switched their pension fund into cash for the final few years of investment before retirement and would not suffer such dramatic drops.

Cuts on traditional with-profit business were also announced. The annual bonus on the initial guaranteed capital sum has been cut by a quarter of a per cent from 1.75 per cent to 1.5 per cent. The rate on existing bonuses under traditional with-profit bonds fell from 3.75 per cent to 3.5 per cent.

Hibernian has 65,000 direct investors in its with-profits products. A proportion of its 100,000 investors in unit-linked policies, including some Special Savings Incentive Account (SSIA) holders, also have the option to invest part of their savings in its with-profit funds, taking the number of those affected by the cuts to between 80,000 and 85,000.

With-profits products smooth out investment returns over the investment term. Some profits will be held back in good years to prop up bonus rates during more difficult times. But most insurers have cut bonus payments each year over the last two years to reflect troubled market conditions and make up for losses already made.

Hibernian Life & Pensions said the cuts in bonus payments reflected expected lower future investment returns, but that the company would pass on future gains to policyholders through a terminal bonus on maturity.

No terminal bonuses will be awarded to holders of unitised policies purchased after 1997 who encash their policy during 2003.