Aviva Life & Pensions UK Limited Old With-Profits Sub-Fund Distribution
Information for eligible customers invested in the Old With-Profits Sub-Fund
The Old With-Profits Sub-Fund holds a certain level of money, over and above the amounts needed to make pay-outs to customers. This acts as a 'buffer' and provides security for our customers.
Each year the Board of Aviva Life & Pensions UK Limited reviews the size of the ‘buffer’ to determine whether the fund has additional surplus that can be shared with eligible policies.
If you decide to move money out of with-profits, the extra final bonus would increase your policy benefits, but this can change over time.
We have set the extra final bonus at a level we expect to maintain and even hope to increase over time. However, this can’t be guaranteed. In some circumstances, we may need to reduce or even stop it. We would only stop it if all the ‘buffer’ was required to provide security for customers. This may happen if economic or investment conditions change significantly.
Customers do not need to take any action and any increase will be incorporated into valuations, statements, surrender notices and claims payments.
Am I eligible? What policies are entitled to the increase?
A policy is eligible if it was invested in the Aviva Life & Pensions UK Limited Old With-Profits Sub-Fund prior to 1 January 2015. Customers invested in the Old With-Profits Sub-Fund (who did not vote ‘Yes’ at the 2009 reattribution) have an eligible policy if it was invested in the Old With-Profits Sub-Fund between October 2009 and 1 January 2015. Newer policies or additional investments into existing policies after 1 January 2015 receive a reduced uplift.
NB. Those customers who joined the Old With-Profits Sub-Fund from 2006 and have a policy with an 11.75% share in the Old With-Profits Sub-Fund will have the uplift applied on a pro rata basis, i.e. 11.75% of the extra final bonus.
How can I work out what this means for my policy?
We’ll take your with-profits policy benefit and add any extra final bonus when you leave the fund*. The table below shows 3 simple examples - to illustrate the impact of the extra final bonus on a £10,000 With-profits benefit:
With-Profits benefit
Extra final bonus increase
10%
12%
15%
£10,000
£1.000
£1,200
£1,500
*NOTE: If your policy has an ‘additional’ policy guarantee at the point you leave the fund, we’ll take the normal with-profits policy benefit and add any extra final bonus. We’ll then compare this with the ‘additional’ policy guarantee benefit and pay-out the larger of the two. See “What about ‘additional policy guarantees?” below.
What will I actually get?
The extra final bonus will be added to the value of your with-profits policy benefits, but this can change over time. If your policy has an 'additional' policy guarantee at the point you leave the with-profits fund, we’ll take the normal with-profits policy benefit and add any extra final bonus. We’ll then compare this with the ‘additional’ policy guarantee benefit and pay-out the larger of the two.
Will this increase be included in my annual statement or any policy valuation I request?
Yes, any increase will be included within the final bonus in future policy valuations and annual statements.
If I leave the With-Profits Fund and the extra final bonus subsequently goes up, will you pay the additional amount?
No, you will only receive the increase applicable at the time you they leave the fund.
How have you arrived at the % mentioned?
We are distributing the amount over and above what is required to make contractual future pay-outs on customer’s policies, whilst retaining sufficient surplus to maintain the strength of the fund and provide policyholder security.
We expect to maintain or even hope to increase the extra final over time, however this can’t be guaranteed.
How do I know there’ll be enough ‘additional surplus’ left to give an increase to those that don’t leave the fund for a number of years?
The approach we’ve adopted is designed to ensure there is fairness between customers who leave the fund and those who stay in the fund. We know that we can afford the extra final bonus now, we expect to maintain or even hope to increase it over time. However, this can’t be guaranteed.
Can you take this additional % increase to bonus away?
Yes, as the extra final bonus is not guaranteed. In some circumstances, we may need to reduce or even stop it, to protect customers. This may happen if economic or investment conditions change significantly.
Why are you able to take it away?
We’re able to take it away as it is not guaranteed. If we guaranteed the increase the amount being distributed would be lower.
How often will you review the % increase applicable?
The Board will review the increase at least every 12 months as part of our standard Sub-Fund review process. However, it could be reviewed more frequently if economic or investment conditions change significantly.
Does this mean the bonuses paid previously are too low?
No, normal regular and final bonuses have been applied correctly based on the performance of the assets backing your policy and the investment returns received during the period of your investment.
This increase is over and above the investment return from your policy.
Will there be further payments in the future?
Whilst the percentage increase could change there will be no further new distributions from the Old With-Profits Sub-Fund.
Will this impact the Aviva share price / dividend?
No, this will have no direct impact on the Aviva share price / dividend.
Can you tell me more about the different types of with-profits policies and 'additional' policy guarantees?
With-profits policies are split into two basic kinds. Older policies tend to be of the 'conventional' type. These may include some pension and protection policies. They also include mortgage endowment policies that used to be taken out in conjunction with interest-only mortgages. More modern policies tend to be 'unitised' and generally include bonds and pension policies.
Conventional policies
These are typically older policies which have:
A sum assured – this is guaranteed to be paid on death or at the policy maturity date.
Regular bonuses – these may be added during the policy term and again are guaranteed to be paid on death or at the maturity date.
Final bonus – this bonus may be added on death or at the maturity date; it is not guaranteed at any point until a claim is made.
A surrender value – this is the amount payable should you choose to end your policy before the maturity date and is not guaranteed.
Unitised policies
These are typically newer policies which have:
Units - which are purchased using your investment/premiums. The price of the units (unit price) increases in line with the regular bonus rate applying at the time.
Regular bonuses – the number of units you hold remains the same, but the value of the units increase in line with the bonus rate set.
Final bonus – if the underlying performance of the Sub-Fund has been better than the regular bonus in the unit price, a final bonus may be added.
Market value reduction - where the underlying performance of the Sub-Fund has been lower than the regular bonus in the unit price, then a market value reduction may be applied. As the name suggests, this will reduce the value of the with-profits benefits. Your policy may have guarantee points where no market value reduction is applied. This will depend on the policy you have but may include the maturity date, specific anniversaries, existing regular withdrawals and death. Your policy documents will tell you if you have any market value reduction free points.
What are ‘additional’ policy guarantees?
Where additional policy guarantees apply, the guarantee will be applied after the extra final bonus has been added to policy benefits.
In other words, at the point you leave the fund, we’ll take the normal policy benefit and add any extra final bonus. We’ll then compare this with the 'additional' policy guarantee benefit and pay-out the larger of the two.
Additional policy guarantees include:
The Guaranteed Minimum Pension on some pensions.
The Inflation Protected Guarantee and the Money Back Guarantee on some bonds.
The guarantee to repay the original mortgage on death on endowments.
Mortgage Endowment Promise
Where the Mortgage Endowment Promise applies, the Promise is applied after the extra final bonus has been added to the policy benefits.
Our Mortgage Endowment Promise is a promise that was made in the year 2000, to customers with eligible mortgage endowment policies, that an additional amount may be payable at maturity if certain policy conditions are met.
Customers with a Mortgage Endowment Promise receive details and a projected value at maturity, via a regular update letter. Any extra final bonus will be added to this letter to show a revised projected value at maturity.
