MILLIONS of savers with insurance giant Norwich Union are facing more penalties for withdrawing their investments than they were in 2002 — despite the intervening four-year bull market.

Those that hold with-profits policies are being hit with market value reductions (MVRs) of up to 22% for encashing their policies, the insurer announced last week. The highest penalty applies to people who took out a policy in 1992.

Before last week, they would have received a final bonus of 46% (£146 for every £100 of their investment), but the exit penalty takes that to 24% or £124 — in effect a reduction of £22 per £100 or 15%.

In 2002 — the last time NU hiked MVRs — customers who took out a policy in 1992 were hit with an exit penalty of 13%. That took the final bonus from 17% to just 4%, reducing payouts to £104 per £100 from £117 — a fall of around 11%.

This means that someone with a £25,000 with-profits investment bond would be hit with an exit penalty of £3,750 today, compared with just £2,750 six years ago.

Gary Rowe, an actuary at NU, told The Sunday Times: “In 2002, the fall in equity prices was much more gradual and it was only equities that were hit severely. Now everything is falling.”

Despite equities rallying strongly from 2003 to last year, with-profits policyholders with NU have seen a meagre 3% a year investment return on average, Rowe said.

NU is the latest company to introduce MVRs: Standard Life has recently brought in exit penalties of as much as 25%, while Friends Provident charges up to 14%.

Figures from the adviser Hargreaves Lansdown show that NU has turned a £10,000 investment into just £11,255 since 2003, which was the bottom of the last bear market. That return — 12.6% — is less than the £1,899 or 19% achieved by the average balanced-managed fund.

Tom McPhail at Hargreaves Lansdown said: “With-profits are meant to ‘smooth’ returns, so you expect less on the way up, but a bit of shelter on the way down.

“They aren’t doing this, so what’s the point?”

Should I stay or should I go?

If your policy is close to maturity, it could be worth holding out for the final bonus, although you are likely to get less than an investor whose policy matured a year ago.

Check whether you can make your policy “paid up” — by stopping premiums without surrendering. Everyone else should consider quitting and channelling the money into another savings scheme.

You could get a better price by selling your policy on the second-hand market. Typically, this pays out 10%-15% more. Call 0845 0119400 or go to apmm.org for details.

Are there reasons for staying?

If you have a qualifying with-profits plan, the lump sum you receive at the end of your term can be free of tax on income and growth. Your plan has to be in force and all premiums paid for at least 10 years, or three-quarters of the term if it is shorter.

Can I avoid the MVR?

Investors are normally exempt from an MVR on the maturity date of their policy, so if you are close to this date, stay put.

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