Norwich Union announces £2 billion payoutBut Which? says offer not as generous as it seems
06 February 2008
More than a million Norwich Union with-profits policyholders are to share a bonus of £2.1 billion.
The money is part of a £5.5 billion ‘surplus’ in the insurer's investment funds - but there is still no agreement on how the rest of the cash will be distributed.
Norwich Union’s parent company Aviva has confirmed it will be distributing £2.3 billion of its so-called inherited estate, with 90% - £2.1 billion - going to its with-profits customers and 10% - £200 million - being given to shareholders.
This means that 1.1 million qualifying policyholders in the group's CGNU Life and Culac with-profits funds will receive a payout worth about 10% of their policy value.
The money will be paid in three instalments, with the first one made this year, followed by further payouts in 2009 and 2010.
Under the move, someone with a typical with profits bond into which they paid £30,000 in 2001 will receive a total special bonus of £4,500.
A policyholder with a 25-year endowment taken out in 1985 into which they paid £50 a month will have around £3,735 added to their policy.
The ‘inherited estate’ is the term used to describe the surplus assets in a with-profits fund which have built up over many years.
These funds operate a technique known as ‘smoothing’. This means that some of the return from the investments in the fund is kept back in good years and added back to top-up returns during periods of poor performance.
But ‘inherited estates’ then build up because companies often hold back too much money, short-changing previous generations of policyholders.
Negotiations are continuing on how the remainder of the £5.5 billion surplus should be divided up.
Which? personal finance campaigner Dominic Lindley said: ‘While this may seem like a generous gesture by Norwich Union, the fact remains that £2.3 billion isn't even half of the inherited estate.
‘This is money that Norwich Union has held back from policyholders over the years, so it is only right that this payment is made on a 90:10 basis.’
He added: ‘We are disappointed that the money will not be paid immediately to policyholders and will instead be phased over a three-year period. In our view, Norwich Union has no justification for holding on to this money a moment longer.
‘Now there’s the question of the £3.2 billion remaining in the inherited estate. We call on Norwich Union to act with integrity and to not hold back money from policyholders to pay its shareholders' tax bill, subsidise new business or to pay mis-selling claims.’