Scottish Mutual warns of increase in penalties

Scottish Mutual, the life insurance subsidiary of Abbey National, warned yesterday that it was considering imposing higher charges on thousands of policyholders should they cash in policies early.

The move came after it emerged that Abbey National had injected £180m into the unit, partly to enable it to continue aggressively writing new business, but also because of a decline in the value of its balance sheet following the downturn in the equity markets. The level of reserves required for the company to meet guarantees had also increased following recent legislative changes.

A spokesman for Scottish Mutual said that the cash injection was a routine matter as it continued to increase the value of new business written. "This is a regular thing. For it to be perceived as an emergency is incorrect."

However, the company could not rule out raising exit penalties for those seeking to make withdrawals from some of its savings products. "If we were to decide reluctantly to do it, it would be irrelevant to policyholders who decided to stick with us," it said. Scottish Mutual has 800,000 policyholders.