With-Profits bonus rates update

Article date: 12 January 2010

Aviva announces today details of the regular and final bonus rates. Despite the volatility of investment markets over the past two years, the vast majority of regular bonus rates have been maintained. Aviva’s with-profits funds continue to give customers consistent and stable returns, outperforming average savings accounts and comparing favourably with the balanced managed sector.

  • In 2009, Aviva paid almost £1.9 billion to customers (Reattribution, special bonus and final and regular bonuses).
  • 57,000 with-profit bond customers will benefit from a "Market Value Reduction (MVR) free" anniversary or a money-back guarantee this year.

1. Fund performance
A customer who invested £10,000 five years ago in an investment bond would have seen a return of 23.9%, equivalent to 4.4% per annum net of basic rate tax, which compares favourably to an average savings account which would have returned 13.8%, or 2.6% per annum.

Relative performance graph

The chart shows the returns of an investment bond invested in the main Aviva With-Profit Fund. The 10-year figures don’t include market value reductions because Aviva’s "no market value reduction" guarantee is in place. Without this guarantee, the % return would have been 21.6%. Other data sourced from Lipper Hindsight based on investment return at 1 January 2010. The average savings account used is the Moneyfacts Average up to 90 days’ notice, with a £10,000 minimum investment

2. Smoothing and relative performance
The main difference between with-profits and most other investments is that the value is smoothed over the long term. The graph below shows the impact of smoothing on the returns from the main Aviva With-Profit Fund compared with the returns from an average savings account and the ABI UK All Companies sector average:

 

Comparison of with-profits, average savings account and ABI UK all companies graph

This chart shows a £10,000 investment from 1994 in the main Aviva With-Profit Fund through an investment bond, against an average savings account and the ABI UK All Companies sector. The values depicted each month are the surrender values and include any application of early exit charges or Market Value Reductions (MVRs). Figures to 1 January 2010. Other data sourced from Lipper Hindsight based on investment return at 1 January 2010. The average savings account used is the Moneyfacts Average up to 90 days’ notice with a £10,000 minimum investment.

David Barral, chief operating officer at Aviva, said: “The vast majority of customers who have invested in the Aviva with-profit funds have received higher returns than if they had invested in an average bank or building society account and have been protected against the full impact of volatile investment markets. Customers who invested £10,000 in our investment bond 10 years ago would today receive £14,956, compared to a return from typical savings account of £12,905. This is equivalent to 4.1% a year compared to 2.6% from a typical savings account over the same period.” 

3. Special bonus and reattribution update

Special Bonus – In 2010 Aviva will add the third and final special bonus payment to eligible customers’ policies. This final payment brings the total added to eligible policies over three years to the equivalent of 10.7% of customers’ policy value.

Reattribution - Over 90% of customers have received their payments and the remaining 10% will be distributed in the first few months of this year. In total, £450 million will be sent to customers with most of them receiving between £214 and £1,230.

4. Bonus updates

Regular bonus rates

  • Regular bonus rates for unitised policies have been maintained. This means the new business rate for bonds is 2.75%, which compares favourably with current savings rates.
  • For new pensions the regular bonus rate remains at 3.25%.
  • For offshore bonds, rates have been held at 3.5% (Sterling) and 3.25% (Euro/dollar).
  • With-profit income rates are reviewed on 1 January each year. This year, in line with the changes already made to unitised with-profit regular bonus rates in mid-2009, with-profit income rates for new business have reduced from 3.25% to 2.50%.
  • Regular bonus rates for conventional policies, including endowments, have also been maintained at previous levels, with the exception of ex-CGNU policies which have been reduced by 0.5% to bring the guarantees on these policies into line with the actual long-term performance of the fund.

Final Bonus Rates

  • For unitised life and pension policies, final bonus rates have been increased slightly and some market value reductions have been adjusted so that overall payouts have either slightly increased or remained the same.
  • For conventional life and pensions, including endowments, some final bonus rates have reduced and some have increased. 

5. Valuable guarantees
In 2010, approximately 57,000 of Aviva with-profits bond customers are eligible for a guarantee, and more than 50,000 of these customers will be able to take advantage of a "No Market Value Reduction" Guarantee.

Aviva writes to customers before their guarantee dates to bring these valuable guarantees to their attention. Aviva also currently offers a facility which allows customers to take forward the value of any "No Market Value Reduction" guarantee applying on their anniversary, to offset any potential future MVR. 

Aviva launched a With-Profit Guaranteed Fund in November 2009, offering new customers the opportunity to benefit from the potential growth of the With-Profit Fund, with the reassurance that their initial investment is guaranteed at any time after five years.

6. Mortgage endowment maturities
Endowment customers who have invested £50 a month in the ex-NULAP fund for the last 25 years will have seen a return of 4.6% pa net of basic rate tax compared to 3.7% pa from an average savings account. The endowment payment to the customer would be £27,884 which is £3,422 or 14% higher than the amount returned from an average savings account.

Most customers invested over 25 years in our ex-CGNU fund will receive more than their target mortgage amount.  This return is equivalent to 6.6% pa net of basic rate tax giving them a value of £36,979 which is £12,517 or 51% higher than the amount returned from an average savings account.  

The above endowment examples are based on a male, non-smoker, aged 29 investing £50 a month for 25 years with the policy starting on 1 January 1985. Figures are net of basic rate tax and charges. The average savings account used is the Moneyfacts Average up to 90 days’ notice, with a £10,000 minimum investment. The average savings account return includes simulated past performance for the period 01/01/1985 to 31/10/1985 as actual figures are not available.

In addition, 22,000 eligible customers received an additional payment in 2009 through the Aviva 6% mortgage endowment promise.

David Barral chief operating officer at Aviva said: “Although many endowments are not on track to meet the original target amount, we believe most customers have already taken action to cover any shortfall. Customers should be reassured that, in addition to the life cover provided over the period, their investment has performed better than an average savings account.”

7. Facts and figures
Figures in tables below show the impact of today’s rate changes, and include special bonus payments where applicable.  The tables compare Aviva’s returns against average savings (cash), ABI Balanced Managed sector average and ABI UK All Companies sector average. 

NB

1. Onshore Investment bond - 10 years - Date of Investment 01/01/2000

Date of investment

Bond Value 01/01/2010

Cash

Balanced Managed

 

UK All Companies

 

01/01/2000

£14,956

(4.1% pa)

 

£12,905   

(2.6% pa)

 

£11,374   

(1.3% pa)

 

£10,774   

(0.8% pa)

 

These examples are based on a £10,000 investment. The figures don’t include market value reductions because our no market value reduction guarantee was in place. Without the no market value reduction guarantee, the return would have been £12,158. Figures are net of basic rate tax and charges.

2. Mortgage endowment – 25 years – Date of Investment 01/01/1985

 

Maturity value 01/01/10

Cash*

Balanced

Managed

UK All Companies

ex-CGNU

£36,979**

(6.6% pa)

£24,462

(3.7% pa)

£31,274

(5.4% pa)

£32,634

(5.7% pa)

 

ex-CULAC

£30,679**

(5.3% pa)

 

£24,462

(3.7% pa)

£31,274

(5.4% pa)

£32,634

(5.7% pa)

 

ex-NUL&P

£27,884

(4.6% pa)

 

£24,462

(3.7% pa)

£31,274

(5.4% pa)

£32,634

(5.7% pa)

 

The above endowment examples are based on a male, non-smoker, aged 29 investing £50 a month for 25 years with the policy starting on 1 January 1985. Figures are net of basic rate tax and charges. 

*The average savings account used is the Moneyfacts Average up to 90 days’ notice, with a £10,000 minimum investment. The average savings account return includes simulated past performance for the period 01/01/1985 to 31/10/1985 as actual figures are not available.

**These figures exclude any 6% mortgage endowment promise amount.

3. Pension policy – 20 years – Date of Investment 01/01/1990

 

Retirement date value 01/01/10

Cash

Balanced

Managed

UK All Companies

ex-CGNU

£89,903   

(5.9% pa)

 

£71,862   

(3.8% pa)

 

£91,163   

(6.0% pa)

 

£90,518   

(5.9% pa)

 

ex-CULAC

£88,154   

(5.7% pa)

 

£71,862   

(3.8% pa)

 

£91,163   

(6.0% pa)

 

£90,518   

(5.9% pa)

 

ex-NUL&P

£76,372   

(4.4% pa)

 

£71,862   

(3.8% pa)

 

£91,163   

(6.0% pa)

 

£90,518   

(5.9% pa)

 

The above examples are based on a male, investing £200 a month for 20 years from 1 January 1990 with the policy maturing at age 65, with a return of fund death benefit. The figures at 01/01/10 assume retirement at selected retirement age and therefore benefit from the MVR-free guarantee. Pension figures are gross of basic rate tax and after charges.

Important notes:

  • Money in a savings account is accessible and safe, and interest, once earned, is guaranteed. In comparison, with-profits investment is for the medium to long-term, and its value could fall. Tax treatment is also different.
  • Mortgage endowment policies include a return of the target mortgage amount on death and a guaranteed minimum return at maturity. These features are not included in the alternative investments above.
  • Future bonus rates are not guaranteed and may vary. Past performance is not a guide to the future. The value of investment-linked funds can go down as well as up and is not guaranteed. The illustrative maturity amounts include periods of high inflation and high investment returns. We may apply a market value reduction on encashments, but not on maturities or death, which will reduce what a customer would get back from the unitised With-Profit Fund. Past performance is based on the charging structures applicable to the products at the time the policies were taken out. Different charging structures apply to the current products.

8. With-Profits Committee 
Customers are at the heart of everything Aviva does, and Aviva is committed to treating customers fairly at all times. To support this, Aviva has a With-Profit Committee that brings independent expertise and oversight to ensure fairness is fully reflected in With-Profits decision-making.

-ends-

Further information and customer case studies are available by contacting the Aviva UK Life press office:
Louise Soulsby - 01904 452617 / 07800 699526
David Gwyer - 01904 452659 / 07800 693187           

Notes to editors:

General information and further facts and figures

Investment in the Aviva Life and Pensions UK Ltd With-Profits Fund (new and old sub-fund)
In 2009 Aviva’s main With-Profits fund, (formally known as CGNU), recorded an estimated increase of 6% compared to minus 13.7% in 2008. The Aviva Life and Pensions UK Ltd With-Profits Sub Fund, (formally known as NULAP), saw an estimated increase of 6%, and the Provident Mutual fund recorded an estimated increase of 8% (all figures are net of tax).

The proportion in shares and property held in the main With-Profit Fund was 57.3% as at 31 December 2009. This ratio has been actively managed up from 48.4% as at April 2009.   

Mortgage endowment promise
22,000 customers benefited from an addition to their maturing mortgage endowment in 2009. Aviva launched its mortgage endowment promise in 2000 to assist policyholders who, at the time of the announcement, faced a projected shortfall on their mortgage endowment policy (the amount needed to pay off their mortgage when it matured). The mortgage promise was conditional on the company earning a sufficient investment return on its free reserves as well as the policy not being altered or sold.

The company committed around £1 billion of capital for future endowment shortfall assistance – underlining the strength of our with-profits funds. Aviva believes that its mortgage endowment promise remains fully viable. Aviva has committed to its customers that if it was to review the promise, it will give policyholders at least three years’ notice of any proposed changes.

Statistics for the mortgage endowment shortfall status mailing undertaken in 2009, including the promise, are: 4% of policies on ‘green’, 8% ‘amber’ and 88% ‘red’. For policies maturing in 2010, 4% are ‘green’.

Market Value Reductions
Market Value Reductions (MVRs) were reduced in October 2009 from an average of 10% to 8%.

MVRs ensure that those policyholders leaving or wishing to take money out of the fund do not take more than their fair share of the fund at the expense of those policyholders who remain.

MVRs are currently being applied on some unitised policies for those policyholders wishing to take money out of the fund. For unitised endowments and pensions, MVRs apply only when the policy is encashed early. MVRs do not apply on maturity or if the policyholder dies. The actual MVR applied will differ depending when the policy was actually taken out.

How an MVR works
Suppose there are three investors in a with-profits fund, who each pay in £10,000, so the total with-profits fund is worth £30,000. Stock markets fall by 10% so that the total with-profits fund drops to £27,000. If one investor then withdraws his original £10,000, without introducing an MVR, this would leave only £17,000 in the fund to be shared between the remaining two investors. The investor who encashed his policy early would take more than his fair share of the fund.

Special Bonus
In February 2008, Aviva announced a one-off special bonus for qualifying customers in the ex-CGNU Life and ex-CULAC with-profit funds payable in 2008, 2009 and 2010. The third and final of these special bonus payments is now being included in maturity and surrender values being paid. The special bonus was made possible because of the strength of these two funds and because we changed the way we manage our with-profits funds to reduce the investment risk around policy guarantees. These special bonus payments are paid on top of the bonuses detailed in today’s announcement.

At the end of 2009 Aviva has approximately 2.1 million with-profits customers of which 0.7 million are endowments, 0.9 million are pensions and 0.5 million are investment bonds. At the end of June 2009, the total value of Aviva’s with-profits funds was approximately £49 billion (ex-CGNU £13 billion, ex-CULAC £13 billion, Aviva Life & Pensions UK Ltd £21 billion, ex-PM £2 billion).

About Aviva
Aviva, the international savings, investments and insurance group, is the world’s fifth largest insurance group, serving 50 million customers across Europe, North America and Asia Pacific. 

In the UK, Aviva is a leading provider of life, pensions, investment, general insurance and health products to more than 20 million customers. Aviva also provides roadside assistance through RAC. Products are distributed through a number of channels including IFAs, brokers, corporate partners and direct to customers via the internet.

Aviva's UK Insurance business has a market share of around 15%, making it the largest general insurer in the UK. The business is focused on insurance for individuals and small businesses.

Aviva's life and pensions business in the UK has a total market share of 12% and a top three position in its key markets of savings, protection, and annuities.

Aviva’s news releases and a selection of images are available from the internet press centre at www.aviva.com/media.

Back to top