UK: Norwich Union reviews with-profits bonus rates and payouts

Norwich Union has reviewed bonus rates and payouts on its with-profits policies following the bonus announcement in January.

Norwich Union has reviewed bonus rates and payouts on its with-profits policies following the bonus announcement in January. Since the January announcement there has been a small recovery in the stock market, which allowed a lowering in the level of Market Value Reduction (MVR) at the end of April.

The results of the latest review are:

  • The average level of MVR will be lowered from 11% to 9% with immediate effect.
  • Regular bonus rates on conventional and unitised with-profits policies and final bonuses on unitised with-profits policies will remain unchanged.
  • Payouts on some conventional with-profits policies will be reduced by up to 5% with effect from 1 July 2003.

Commenting on the review, Norwich Union chief actuary, Mike Urmston, said: “The market recovery we have seen has worked through in the form of a lower level of MVR. However, on conventional policies that have matured in 2003, we have been paying out around 118% of what has been earned (asset share) so some further adjustment to payouts is necessary for overall fairness.

“On longer-term conventional policies we still need to see payouts more in line with asset shares as the higher investment returns of the past are gradually replaced by the lower level of investment returns we are now seeing. However, if we see a further recovery in the markets we can then start to build up unitised final bonus values again.”

Summary of changes

•   Bonus rates/payouts:
  Conventional policy payouts: Payouts reduced by up to 5%
  Unitised policy payouts: No changes to final bonuses
  Regular bonus rates: No changes
     
Market Value Reduction (MVR)  
  The level of MVR on unitised policies is to be reduced from an average of 11% to an average of 9% with immediate effect. The level of MVR on unitised policies in April 2003 was reduced from an average of 14% to an average of 11%.

Ends

Press office contacts: Out of hours
James Evans 08703 66 68 78 07790 487105
Louise Goffee 08703 66 68 70 07810 057362
Ian Beggs 08703 66 68 71 07790 487533
Lorna Wiltshire 08703 66 68 78 07788 471849

Notes to Editors

Norwich Union is the UK’s largest insurer. It is a leading provider of life, pensions and investment products and one of the leading IFA providers. IFAs provide around 70% of the company’s long-term savings business.

Norwich Union has strategic alliances with building societies and other leading UK brand names including Tesco Personal Finance and The Royal Bank of Scotland Group.

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

Return on the with-profit fund

We expect the average return on the with-profit funds for the first half of 2003 to be around 7% before tax. The return on the funds during 2002 was minus 8.5% and minus 9.5% in 2001.

BONUS TERMS EXPLAINED

There are two types of with-profits policies: Unitised and Conventional.

UNITISED

Contributions buy units in the with-profit fund. The unit price increases as the annual bonus is added on a daily basis.

The payout for a unitised with-profits policy is made up of two elements: The value of units and final bonus.

Value of units: This is the value of the units held.

Final Bonus: At the date of claim the value of the units is compared with the total earnings of the policy. Any balance is reflected in the declaration of a final bonus. Rates are expressed as a percentage of the unit value and vary according to the year the money was invested. Different final bonus rates will apply to the units bought with the different years’ contributions.

Market Value Reduction (MVR): At the date of claim the value of the units is compared with the total earnings of the policy. Any shortfall is reflected in an MVR. Rates are expressed as a percentage of the unit value and vary according to the year the money was invested. Different MVR rates will apply to the units bought with the different years’ contributions. The aim is to maintain a balance between value given to those cashing in and those remaining.

CONVENTIONAL

Contributions secure a guaranteed benefit. Bonuses are added to the guaranteed benefit annually and at the end of the policy term as detailed below.

The payout under a conventional with-profits policy is made up of three elements: the guaranteed benefit, regular bonus and final bonus.

Guaranteed benefit (also known as sum insured): This is the amount payable at the date of the claim (eg. maturity or earlier death). Bonuses are added to this amount over the term of the policy.

Regular bonus (also known as annual or reversionary bonus): This is the amount added to a with-profits policy each year. It is a payment on account towards the full share of policy earnings which will be payable at the date of claim. For most policies it is expressed as one percentage applying to the guaranteed benefit and a further percentage applying to the bonus already added in previous years.

Final bonus (also known as terminal or additional bonus): At the date of claim the total of the guaranteed benefit and regular bonuses to date is compared with the total earnings of the policy. Any balance is reflected through the declaration of a final bonus. Final bonus rates are expressed as a percentage of the guaranteed benefit and will form a scale of rates that will vary according to the year the policy was taken out.

PAYOUT TABLES

The following tables show comparative maturity payouts where they have been changed, following the bonus declaration for the three main companies that now form part of Norwich Union.

Conventional Payouts

  • The endowment policy examples below are based on a male aged 30 next birthday, when the policy was started, for a monthly premium of Ł50.
  • The pension policy example below is based on a male retiring at age 65 for a monthly premium of Ł200.

CGNU (including General Accident)

10 year savings endowment

  Maturing 1.7.03 Maturing 1.1.03 Average rate of
Inflation to June
2003
Guaranteed benefit Ł5,322 Ł5,322  
Regular bonus Ł1,843 Ł1,990  
Final bonus Ł0 Ł0  
Total payout Ł7,165 Ł7,312  
Yield 3.5% 3.9% 2.5%

25 year savings endowment

  Maturing 1.7.03 Maturing 1.1.03 Average rate of
Inflation to June
2003
Guaranteed benefit Ł14,431 Ł14,431  
Regular bonus Ł27,326 Ł27,500  
Final bonus Ł24,637 Ł28,094  
Total payout Ł66,394 Ł70,025  
Yield 10.4% 10.8% 3.9%

25 year mortgage endowment (excluding any ‘promise payment’)

  Maturing 1.7.03 Maturing 1.1.03 Average rate of
Inflation to June
2003
Guaranteed benefit Ł13,872 Ł13,731  
Regular bonus Ł26,266 Ł26,166  
Final bonus Ł23,681 Ł26,731  
Total payout Ł63,819 Ł66,628  
Yield 10.2% 10.4% 3.9%

20 year pension (Ł2400 p.a.)

  Maturing 1.7.03 Maturing 1.1.03 Average rate of
Inflation to June
2003
Guaranteed benefit Ł60,779 Ł 60,779  
Regular bonus Ł82,337 Ł 82,337  
Final bonus Ł615 Ł 2,213  
Total payout Ł143,731 Ł145,329  
Yield 9.6% 9.7% 3.3%

Commercial Union

10 year savings endowment

  Maturing 1.7.03 Maturing 1.1.03 Average rate of
Inflation to June
2003
Guaranteed benefit Ł5,361 Ł5,361  
Regular bonus Ł1,621 Ł1,796  
Final bonus Ł0 Ł0  
Total payout Ł6,982 Ł7,157  
Yield 3.0% 3.5% 2.5%

25 year savings endowment

  Maturing 1.7.03 Maturing 1.1.03 Average rate of
Inflation to June
2003
Guaranteed benefit Ł13,200 Ł13,200  
Regular bonus Ł38,258 Ł40,183  
Final bonus Ł14,408 Ł16,015  
Total payout Ł65,866 Ł69,398  
Yield 10.4% 10.7% 3.9%

25 year mortgage endowment (excluding any ‘promise payment’)

  Maturing 1.7.03 Maturing 1.1.03 Average rate of
Inflation to June
2003
Guaranteed benefit Ł12,447 Ł12,592  
Regular bonus Ł36,075 Ł38,333  
Final bonus Ł13,586 Ł15,277  
Total payout Ł62,108 Ł66,202  
Yield 10.0% 10.4% 3.9%

20 year pension (Ł2400 p.a.)

  Maturing 1.7.03 Maturing 1.1.03 Average rate of
Inflation to June
2003
Guaranteed benefit Ł43,458 Ł43,458  
Regular bonus Ł91,192 Ł97,883  
Final bonus Ł5,386 Ł5,653  
Total payout Ł140,036 Ł146,994  
Yield 9.4% 9.8% 3.3%

Norwich Union Life & Pensions (NUL&P)

10 year savings endowment

  Maturing 1.7.03 Maturing 1.1.03 Average rate of
Inflation to June
2003
Guaranteed benefit Ł5,533 Ł5,533  
Regular bonus Ł1,278 Ł1,278  
Final bonus Ł0 Ł249  
Total payout Ł6,811 Ł7,060  
Yield 2.5% 3.2% 2.5%

25 year savings endowment

  Maturing 1.7.03 Maturing 1.1.03 Average rate of
Inflation to June
2003
Guaranteed benefit Ł14,500 Ł14,500  
Regular bonus Ł28,755 Ł28,755  
Final bonus Ł13,340 Ł16,313  
Total payout Ł56,595 Ł59,568  
Yield 9.4% 9.7% 3.9%

25 year mortgage endowment (excluding any ‘promise’ payment)

  Maturing 1.7.03 Maturing 1.1.03 Average rate of
Inflation to June
2003
Guaranteed benefit Ł14,108 Ł14,108  
Regular bonus Ł27,978 Ł27,978  
Final bonus Ł12,979 Ł15,871  
Total payout Ł55,065 Ł57,957  
Yield 9.2% 9.5% 3.9%

20 year pension (Ł200 p.m.)

  Maturing 1.7.03 Maturing 1.1.03 Average rate of
Inflation to June
2003
Guaranteed benefit Ł56,338 Ł56,373  
Regular bonus Ł71,696 Ł71,743  
Final bonus Ł2,817 Ł9,301  
Total payout Ł130,851 Ł137,417  
Yield 9.1% 9.6% 3.3%

Provident Mutual

10 year savings endowment

  Maturing 1.7.03 Maturing 1.1.03 Average rate of
Inflation to June
2003
Guaranteed benefit Ł5,625 Ł5,625  
Regular bonus Ł1,291 Ł1,291  
Final bonus Ł0 Ł0  
Total payout Ł6,916 Ł6,916  
Yield 2.8% 2.8% 2.5%

25 year savings endowment

  Maturing 1.7.03 Maturing 1.1.03 Average rate of
Inflation to June
2003
Guaranteed benefit Ł15,230 Ł15,230  
Regular bonus Ł21,558 Ł21,558  
Final bonus Ł8,829 Ł11,404  
Total payout Ł45,617 Ł48,192  
Yield 8.0% 8.3% 3.9%

25 year mortgage endowment (excluding any ‘promise’ payment)

  Maturing 1.7.03 Maturing 1.1.03 Average rate of
Inflation to June
2003
Guaranteed benefit Ł14,650 Ł14,650  
Regular bonus Ł21,413 Ł21,413  
Final bonus Ł8,770 Ł11,328  
Total payout Ł45,311 Ł47,869  
Yield 7.7% 8.1% 3.9%

20 year pension (Ł2,400 p.a.)

  Maturing 1.7.03 Maturing 1.1.03 Average rate of
Inflation to June
2003
Guaranteed benefit Ł61,202 Ł61,202  
Regular bonus Ł37,117 Ł37,117  
Final bonus 12,991 Ł18,559  
Total payout Ł111,310 Ł116,878  
Yield 7.5% 7.9% 3.3%

Important notes:

Future bonus rates are not guaranteed and may vary, as they depend on profits yet to be earned. 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 (except on some maturity or death) which will reduce what you 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 effected. Different charging structures apply to the current products. Full written terms and conditions of Norwich Union products are available on request. Norwich Union is authorised and regulated by the Financial Services Authority and only advises on its own products.

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