After two years of wrangling, Aviva, the insurer that owns Norwich Union, has
finally agreed to pay out £1 billion in reattribution to with-profit
policyholders in what the company calls a great deal.
But who exactly will receive what — and is the offer as fair as it sounds?
Q: Who is eligible for a payout?
A: Around one million policyholders will be eligible for a reattribution
payout, averaging £1,000 per customer.
Only policyholders who invested in the GCNU Life or CULAC with-profits funds
before November 21, 2006, and remain in the funds on the day of
reattribution, which is expected to be spring 2009, are eligible for
payouts. These are mainly customers with endowment policies, pension
policies and with-profits bonds.
Policyholders in NULAP are ineligible.
You can check eligibility online at www.norwichunion.com/fundtransfer.
Q: How much will policyholders get?
A: Each payment will depend on the size of the policy and how long it has left
to run. Around 700,000 people can expect to receive between £400 and £1,000
and a further 220,000 will receive between £1,000 and £3,500.
Policyholders who choose to take part could expect payments in summer 2009.
Q: What does reattribution mean?
A: Under reattribution, policyholders are able to choose whether to receive a
cash payment in return for giving up their right to receive any possible
future payouts from the funds’ inherited estates — or to stay as they are,
with the possibility of receiving future special distributions from the
fund, if any are made. Aviva says that “sizeable distributions are unlikely,
especially in the next few years”.
"Inherited estate" is the term used to describe the surplus assets
in a with-profits fund, which have built up over years. With-profits funds
operate a technique known as smoothing, where some of the investment return
is retained in good years and added to top up returns during periods of poor
performance.
Inherited estates build up because companies hold back too much money,
short-changing previous generations of policyholders.
Q: I may be eligible – what happens now?
A: You do not need to do anything now. Later this year, policyholders who are
entitled to the payout will receive a letter from Aviva, telling them the
value of their individual payout. In spring 2009, eligible policyholders
will have to vote in favour of the reattribution to receive a payment.
Q: How does the voting work?
A: Policyholders will be sent an information pack, setting out the voting
process and what they need to do to receive a payment. It will be a free
vote and policyholders are under no obligation to vote in favour. There is
no majority vote as each policyholder can make their decision on a
policy-by-policy basis.
If they do not vote, they will be assumed to have voted no and will not
receive the payment. Policyholders who choose to vote no will continue to
share in any future special distributions, if any are made, while they
remain a policyholder.
Q: If I am eligible, should I accept the payment?
A: Dominic Lindley at Which? says: “Policyholders will need to individually
decide whether to accept the deal or to retain their interest in the
inherited estate. You do not need to take any action now — Norwich Union
will write to individual policyholders later this year with details of the
deal.
“The policyholder advocate, Clare Spottiswoode, is currently preparing
material which will be sent to policyholders to help you make your choice.
You may also wish to talk to your independent financial adviser.
“For some policyholders it may be a difficult decision; for others it is more
an ultimatum than a real choice. Policyholders need to weigh up the current
offer against how much you may receive from future special bonuses. If your
policy has matured, or is soon to mature, you are unlikely to receive
anything unless you accept the deal. By contrast, if you think you will stay
with Aviva for a long time, you have more chance of receiving future special
bonuses."
For more information, go to www.which.co.uk/withprofits
Q: Where is this cash for policyholders coming from?
A: The cash payment to policyholders comes from shareholder funds. The
inherited estate continues to be used to support the fund and is only
released to shareholders when it is no longer required by the fund.
Q: Aren’t policyholders getting a special distribution payout as well?
A: Yes — this was announced by Aviva in February. About 1.1 million
policyholders will share a bonus of £2.1 billion. The payout will be made in
instalments over three years and will add 10 per cent to policy values.
The combination of the company’s offer and the special distribution means that
70 per cent of the value of the £3.3 billion inherited estate would be
released to policyholders if all policyholders voted to accept the payout.
Q: So is this a fair deal?
A: Ms Spottiswoode says yes. “I am delighted that we have a deal that is in
the interests of the great majority of policyholders. There is a substantial
amount of cash on offer,” she said today. The City watchdog, the Financial
Services Authority (FSA), has also carried out an initial review and
concluded that the offer is fair and should be put to policyholders.
Although some campaigners wanted 90 per cent of the value of the inherited
estate to be released to policyholders, 70 per cent is better than many
recent similar deals.
Mr Lindley at Which? says: “The deal is certainly better than that made to AXA
policyholders in 2000. They were offered just 31 per cent of AXA's £1.7
billion inherited estate.”
Aviva’s rival, Prudential, last month dropped plans to give its policyholders
a share of the £8.7 billion in excess capital that has built up in its
with-profits fund.
Mr Lindley adds: “However, Which? believes that policyholders would have been
in line for a better deal if the FSA protected policyholder interests and
stopped allowing the inherited estate to be used for purposes, such as
paying shareholder tax bills, subsidising new business, covering the costs
of compensation for mis-selling and propping up the staff pension scheme.”
To find out if you qualify for a payout, call the Aviva helpline on 0800 051
1300 and give them your policy number.
My policy matures in 2012 so, I am lucky enough to get an offer but it will most likely be the lower offer between £400 - £1000 which is rather ironic as my last statement suggested my policy would be between £400 - £1000 short of target. They could have simply added 15% to all in 2006
paul, rainham, kent
I am disgusted at the decison that you must be a policy holder on the date the reattribution takes place. I have three Norwich Union policies for 25 years, all of which are due to mature this year and predicting shortfalls. I will certainly never invest with Norwich Union in the future.
Lynn NI
Lynn Jess, Comber, Northern Ireland
What has happened to the admirable tradition of 'investigative journalism? Every report that I read about this 'legalised' theft of the NU's IE merely reports the announcements of those who are 'stealing' a major part of the IE. When will media people dig deeper into the disgusting affair? AC.
AC, Manchester,
This is policyholder's money, why should NU get any of it! My pension with NU has performed miserably and now they get to rip their "customers" off again. Sadly this is no surprise.
Chris, Milton Keynes, UK
Presumably the Treasury Select Committee and the FSA will now pat themselves on the back with a job well done. I don't think so. All that will happen is Aviva's main insurance funds (CGNU, CULAC and NULAP) will keep all of the inherited estate surplus for shareholders. Policyholders 0% bonus remains
richie 2, Cardiff, Wales
Can someone please explain how shareholders will benefit from this proposal?
Stan Wheatley, Blandford Forum, Dorset
This is quite unfair to policyholders whose bonuses have suffered badly over the last few years but whose policies mature before spring 2009.
The whole process has been far too protracted and I feel that endowment holders who have lost so much in recent times should be fully compensated from these funds to the full value of their original policies before the balance is distributed
marcia, Windsor, England
I was interested to read Richie's comment regarding the annual bonus's. Having had all 3 of my NU endowment policies mature in 2006 and 2007, a couple running in excess of 20 years, can someone tell me why you need to be a current policyholder at the specified time? Seems a bit of a lottery to me!
Charlie, Canterbury,
It is far from a fair deal for many as they either get none of or only one third or two thirds of the distribution sum of £2.4 billion. As that money formed part of the original £5.4 billion IE the current settelemt is not good enough.
Graham Wilson, Penarth, Vale of Glamorgan
I do not belive it is a fair deal for policyholders, there is £2.1 billion still within the IE for a retribution, not the £31 bilion being offered, these sums are above the needs and liabilities of the funds. So i belive we have been short changed by the FSA, The PA, and NU..
Ronny J Colchester
ronald jones, Colchester, Essex
What are the tax implications of this reattribution?
Pete, St Helens,
Policyholders have been sold short by Spottiswoode. A fair deal to her is 3 years" salary at around £250,000 per annum whilst she is recommending policyholders should accept only 70% when their entitlement is 90% of the Inherited Estate. It stinks to high heaven!
John Pilkington, Gloucester, Gloucestershire
It's amazing that policyholders have received poor annual bonuses for years and then all of a sudden there is £3.4bn to be returned to policyholders. Dependant upon policy maturity date this is poor deal and a bribe for Aviva to get its hands on ALL of the inherited estate surplus in the future.
Richie, cardiff, Wales