Norwich Union announces regular bonus rates and payouts for its with-profits policies for 2004. In the main, maturing policy payouts and bonus rates are lower. However for some policies, payouts and bonus rates will be maintained at 2003 levels. In addition, regular bonus rates for the current range of investment and pensions products are unchanged.
Main press release
Regular bonus rates
Policy payouts
With-profit fund performance
With-profit fund investment mix
Market value reduction (MVR)
Bonus terms explained
Policy payout tables
UK: With-Profits Bonus Announcement
Norwich Union announces regular bonus rates and payouts for its with-profits policies for 2004. In the main, maturing policy payouts and bonus rates are lower. However for some policies, payouts and bonus rates will be maintained at 2003 levels. In addition, regular bonus rates for the current range of investment and pensions products are unchanged.
During 2003, the investment return on the with-profit fund improved significantly as a result of the rising stock market. The return on the fund in 2003 was 11.5% (before tax) compared to minus 8.6% in 2002. This strong investment return will be passed onto all with-profits policies through increases in underlying asset shares.
While asset shares have increased due to the excellent fund performance, most maturing policy values are still higher than individual asset shares. As a result, payouts on these maturing policies still need to be lowered to bring them closer into line with their individual asset share. This process is necessary to ensure all our policyholders receive their fair share of the fund.
The strong investment performance means that investors who joined the with-profit fund during 2003 benefit from both a regular and final bonus being declared on their policy. For example, a customer who invested in a with-profits bond on 1 January 2003 will have seen a regular bonus of 3.25% and a final bonus allowance of 3% - giving an overall equivalent bonus of 6.35% (net of tax).
During 2003 Norwich Union paid out an average of 110% of asset shares on maturing policies demonstrating the smoothing of returns taking place within the fund and the benefit to customers of investing in with-profits.
Mike Urmston, chief actuary of Norwich Union, said: “The excellent investment return on the with-profit fund in 2003 will result in an increase in the underlying asset share of all with-profits policies which is good for policyholders. In addition, the turnaround in investment performance has also enabled us to declare a final bonus of 3% on money invested in unitised policies during 2003.
“With-profits continues to serve customers well, delivering excellent returns over the medium to long term. For example a 25-year savings endowment has returned 10.1% a year after tax. New customers can continue to take advantage of with-profits investments and will see investment returns, subject to smoothing, from when they join the fund.”
Norwich Union with-profits policies continue to offer excellent returns:
- A 25-year savings endowment has returned 10.1% a year after tax - a real return of 6.4% a year
- A 20-year with-profits pension has returned 8.7% a year - a real return of 5.5% a year
- A 10-year with-profits bond has returned 5.7% a year after tax – a real return of 3.1% a year
Norwich Union has also reduced the Market Value Reduction (MVR) applicable to early encashment of unitised with-profits policies from an average of 9% to an average of 8%.
The growth in the stock market will lead to some improvement in the position of mortgage endowment policies. As a result many policyholders would see slightly lower projected shortfalls or slightly higher projected surpluses now.
During 2003, the CGNU life with-profit fund equity backing ratio (shares and property) increased from 54% to 65%. This was due to an increase in the value of property and shares and a strategic move of cash into shares during the early part of 2003.
Mike Urmston added: “While we saw a positive return on the fund in 2003, over the previous three years we saw a cumulative return of minus 18.2% and the changes we have made need to be set against this. The FTSE 100 is still around 2,400 points below its peak level of 6,930 in December 1999. We are however cautiously optimistic about the stock market where we have seen good growth over the last nine months from the FTSE 100 low point of 3,287 in March. ”
All figures and examples of returns quoted above refer solely to the CGNU life with-profit fund
UNITISED POLICIES
- Explicit charge life and investment products (incl. bonds): no change from 4.25%
- Explicit charge pensions: no change from 4%
- Explicit charge stakeholder pensions: no change from 3.5%
- Offshore bonds: no change - 5% for sterling and 4.75% for euro or dollar business
- Implicit charge life/investment bonus rate will be reduced from 3.25% to 2.50%
- CGNU: Implicit charge pensions rate will reduce from 3.75% to 3.0%
- For NULAP/ CU: the equivalent implicit charge bonus rate is currently unchanged at 4% but will change to the CGNU rate of 3% during 2004
Explicit charging means that the annual management charge is deducted from the unit value separately to the bonus rate setting. Implicit charging means that the annual management charge for the policy is deducted from the investment return before the annual bonus rate is set.
CONVENTIONAL POLICIES
Life and investment
- NULAP: The rate on the sum assured will reduce from 0.50% to 0% and on the attaching bonuses from 1.0% to 0.50%
- Commercial Union: No change from 0% / 0.50%
- CGNU: No change from 0.50% / 1.0%
- Provident Mutual: The rate on the sum assured will reduce from 0.50% to 0% and on the attaching bonuses from 1.0% to 0.50%.
Pensions
- Provident Mutual: The rate will be reduced from 0.50% to 0%.
- Other pensions: no change from 0% / 0%
UNITISED POLICIES
- In most cases the final bonus rate remains the same
- 3% final bonus rate introduced for monies invested in 2003
- 1.75% final bonus introduced for single premiums into new with-profit bonds in 2004
CONVENTIONAL POLICIES
Life and investment policies
- NULAP: Policy payouts over 10 and 15-year terms are unchanged. Policy payouts with a term of 20 years plus will be lower by 5%.
- Commercial Union & CGNU: Policy payouts will be lower by between 3% and 7%
Pension policies
- NULAP: Policy payouts will be up to 10% lower
- Commercial Union: Regular premium policy payouts up to 15 years stay unchanged. Other policy payouts will be between 5% and 10% lower
- CGNU: Policy payouts will be 10% lower
Ends
Press office contacts:
Norwich Union Life press office: 01904 452791 / 452617 / 452828
| Out of hours | |
| James Evans | 07790 487105 |
| Louise Goffee | 07810 057362 |
| David Gwyer | 07800 699508 |
Notes To Editors
Norwich Union is the UK's largest insurer. It is the UK's largest provider of life, pensions and investment products and one of the leading IFA providers. IFAs provide around 75% 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 are available on the Aviva plc website at www.aviva.com
Norwich Union writes new with-profits business in the CGNU Life with-profits fund.
| Year | Fund performance (before tax) |
|---|---|
| 2003 | plus 11.5% |
| 2002 | minus 8.6% |
| 2001 | minus 9.5% |
| 2000 | minus 1.1%. |
Estimated investment mix of the CGNU with-profit fund at the end of 2003
| Investment type | % at end of 2003 | % at end of 2002 |
|---|---|---|
| UK Shares | 41.4 | 31.1 |
| International shares | 9.3 | 9 |
| Property | 14.5 | 14.3 |
| UK Fixed Interest and bonds | 26.1 | 34.2 |
| International Bonds | 4.4 | 4.7 |
| Cash | 4.3 | 6.7 |
At the start of 2003 the equity backing ratio (EBR) of the CGNU fund was 54.4% (of which shares were 40.1% and property 14.3%). During the year the EBR rose to 65.2%.
The level of MVR applicable to early encashment of unitised with-profits products has been reduced from an average of 9% to an average of 8%. The average MVR rate on 1 January 2003 was 12%.
Asset share: Asset share is a calculation of what has been “earned” for a policy and it is an accumulation of premiums plus investment return, less charges and cost of life cover and adjusted for tax where appropriate.
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 made up by the declaration of a final bonus. Scales 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 reductions (MVR): A market value reduction is used as part of the smoothing policy for with-profits. It is applied only in extreme market conditions to help manage funds in a way that is fair to all with-profits policyholders during the difficult conditions.
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 made up 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.
Number of with-profit policies - approximately 3.3 million made up as follows:
- 1.2 million with-profits pensions
- 1.3 million with-profits endowments
- 0.8 million with-profits investment bonds
The following tables show comparative payouts following the bonus declaration for the three main companies that now form part of Norwich Union.
Unitised Payouts
The bond examples below are based on a Ł10,000 single contribution made by a male aged under 75 at the outset. The Pension example is for a male for a monthly premium of Ł200, maturing at age 65, with a return of fund death benefit. Other examples are available on request.
CGNU (including General Accident)
With-profits bond started on 1 January 1993
| Cashed in 01.01.03 | Cashed in 01.07.03 | Cashed in 01.01.04 | |
|---|---|---|---|
| Total surrender value | Ł19,421 | Ł19,785 | Ł20,159 |
10 year personal pension
| Maturing 1.7.03 | Maturing 1.1.04 | Average rate of Inflation to Dec 2003 | |
|---|---|---|---|
| Unit value | Ł30,655 | Ł30,452 | |
| Final bonus | Ł0 | Ł48 | |
| Total payout | Ł30,655 | Ł30,500 | |
| Yield | 4.8% | 4.7% | 2.5% |
Commercial Union
With-profits bond started on 1 January 1993
| Cashed in 01.01.03 | Cashed in 01.07.03 | Cashed in 01.01.04 | |
|---|---|---|---|
| Total surrender value | Ł18,511 | Ł18,812 | Ł19,113 |
10 year personal pension
| Maturing 1.7.03 | Maturing 1.1.04 | Average rate of Inflation to Dec 2003 | |
|---|---|---|---|
| Unit value | Ł31,138 | Ł29,713 | |
| Final bonus | Ł0 | Ł45 | |
| Total payout | Ł31,138 | Ł29,758 | |
| Yield | 5.1% | 4.6% | 2.5% |
Norwich Union Life & Pensions (NUL&P)
With-profits bond started on 1 January 1993
| Cashed in 01.01.03 | Cashed in 01.07.03 | Cashed in 01.01.04 | |
|---|---|---|---|
| Total surrender value | Ł17,747 | Ł18,033 | Ł18,673 |
10 year personal pension
| Maturing 1.7.03 | Maturing 1.1.04 | Average rate of Inflation to Dec 2003 | |
|---|---|---|---|
| Unit value | Ł29,848 | Ł29,468 | |
| Final bonus | Ł239 | Ł390 | |
| Total payout | Ł30,087 | Ł29,858 | |
| Yield | 4.4% | 4.3% | 2.5 % |
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 1.1.04 | Average rate of Inflation to Dec 2003 | |
|---|---|---|---|
| Guaranteed benefit | Ł5,322 | Ł5,217 | |
| Regular bonus | Ł1,843 | Ł1,660 | |
| Final bonus | Ł0 | Ł0 | |
| Total payout | Ł7,165 | Ł6,877 | |
| Yield | 3.5% | 2.7% | 2.5% |
25 year savings endowment
| Maturing 1.7.03 | Maturing 1.1.04 | Average rate of Inflation to Dec 2003 | |
|---|---|---|---|
| Guaranteed benefit | Ł14,431 | Ł14,431 | |
| Regular bonus | Ł27,326 | Ł26,142 | |
| Final bonus | Ł24,637 | Ł22,315 | |
| Total payout | Ł66,394 | Ł62,888 | |
| Yield | 10.4% | 10.1% | 3.7% |
25 year mortgage endowment
| Maturing 1.7.03 | Maturing 1.1.04 | Average rate of Inflation to Dec 2003 | |
|---|---|---|---|
| Guaranteed benefit | Ł13,872 | Ł13,641 | |
| Regular bonus | Ł26,266 | Ł24,710 | |
| Final bonus | Ł23,681 | Ł21,093 | |
| Total payout | Ł63,819 | Ł59,444 | |
| Target amount | Ł28,779 | Ł28,779 | |
| Yield | 10.2% | 9.7% | 3.7% |
20 year pension (Ł2400 p.a.)
| Maturing 1.7.03 | Maturing 1.1.04 | Average rate of Inflation to Dec 2003 | |
|---|---|---|---|
| Guaranteed benefit | Ł62,709 | Ł61,182 | |
| Regular bonus | Ł83,456 | Ł68,593 | |
| Final bonus | Ł628 | Ł273 | |
| Total payout | Ł146,792 | Ł130,048 | |
| Yield | 9.5% | 8.7% | 3.2% |
Commercial Union
10 year savings endowment
| Maturing 1.7.03 | Maturing 1.1.04 | Average rate of Inflation to Dec 2003 | |
|---|---|---|---|
| Guaranteed benefit | Ł5,361 | Ł5,361 | |
| Regular bonus | Ł1,621 | Ł1,444 | |
| Final bonus | Ł0 | Ł0 | |
| Total payout | Ł6,982 | Ł6,805 | |
| Yield | 3.0% | 2.5% | 2.5% |
25 year savings endowment
| Maturing 1.7.03 | Maturing 1.1.04 | Average rate of Inflation to Dec 2003 | |
|---|---|---|---|
| Guaranteed benefit | Ł13,200 | Ł13,133 | |
| Regular bonus | Ł38,258 | Ł35,905 | |
| Final bonus | Ł14,408 | Ł13,730 | |
| Total payout | Ł65,866 | Ł62,768 | |
| Yield | 10.4% | 10.1% | 3.7% |
25 year mortgage endowment
| Maturing 1.7.03 | Maturing 1.1.04 | Average rate of Inflation to Dec 2003 | |
|---|---|---|---|
| Guaranteed benefit | Ł12,447 | Ł12,562 | |
| Regular bonus | Ł36,075 | Ł34,343 | |
| Final bonus | Ł13,586 | Ł13,133 | |
| Total payout | Ł62,108 | Ł60,038 | |
| Target Amount | Ł28,613 | Ł31,171 | |
| Yield | 10.0% | 9.8% | 3.7% |
20 year pension (Ł2400 p.a.)
| Maturing 1.7.03 | Maturing 1.1.04 | Average rate of Inflation to Dec 2003 | |
|---|---|---|---|
| Guaranteed benefit | Ł43,458 | Ł43,458 | |
| Regular bonus | Ł91,192 | Ł84,501 | |
| Final bonus | Ł5,386 | Ł5,118 | |
| Total payout | Ł140,036 | Ł133,077 | |
| Yield | 9.7% | 9.3% | 3.2% |
Norwich Union Life & Pensions (NUL&P)
10 year savings endowment
| Maturing 1.7.03 | Maturing 1.1.04 | Average rate of Inflation to Dec 2003 | |
|---|---|---|---|
| Guaranteed benefit | Ł5,533 | Ł5,533 | |
| Regular bonus | Ł1,278 | Ł1,061 | |
| Final bonus | Ł0 | Ł221 | |
| Total payout | Ł6,811 | Ł6,815 | |
| Yield | 2.5% | 2.5% | 2.5% |
25 year savings endowment
| Maturing 1.7.03 | Maturing 1.1.04 | Average rate of Inflation to Dec 2003 | |
|---|---|---|---|
| Guaranteed benefit | Ł14,500 | Ł14,500 | |
| Regular bonus | Ł28,755 | Ł25,133 | |
| Final bonus | Ł13,340 | Ł14,138 | |
| Total payout | Ł56,595 | Ł53,771 | |
| Yield | 9.4% | 9.0% | 3.7% |
25 year mortgage endowment
| Maturing 1.7.03 | Maturing 1.1.04 | Average rate of Inflation to Dec 2003 | |
|---|---|---|---|
| Guaranteed benefit | Ł14,108 | Ł14,108 | |
| Regular bonus | Ł27,978 | Ł24,453 | |
| Final bonus | Ł12,979 | Ł13,755 | |
| Total payout | Ł55,065 | Ł52,316 | |
| Target Amount | Ł31,006 | Ł31,006 | |
| Yield | 9.2% | 8.9% | 3.7% |
20 year pension (Ł200 p.m.)
| Maturing 1.7.03 | Maturing 1.1.04 | Average rate of Inflation to Dec 2003 | |
|---|---|---|---|
| Guaranteed benefit | Ł56,338 | Ł56,886 | |
| Regular bonus | Ł71,696 | Ł64,092 | |
| Final bonus | Ł2,817 | Ł0 | |
| Total payout | Ł130,851 | Ł120,978 | |
| Yield | 9.1% | 8.5% | 3.2% |
Provident Mutual
10 year savings endowment
| Maturing 1.7.03 | Maturing 1.1.04 | Average rate of Inflation to Dec 2003 | |
|---|---|---|---|
| Guaranteed benefit | Ł5,625 | Ł5,625 | |
| Regular bonus | Ł1,291 | Ł1,125 | |
| Final bonus | Ł0 | Ł0 | |
| Total payout | Ł6,916 | Ł6,885 | |
| Yield | 2.8% | 2.7% | 2.5% |
25 year savings endowment
| Maturing 1.7.03 | Maturing 1.1.04 | Average rate of Inflation to Dec 2003 | |
|---|---|---|---|
| Guaranteed benefit | Ł15,230 | Ł15,230 | |
| Regular bonus | Ł21,558 | Ł19,900 | |
| Final bonus | Ł8,829 | Ł10,539 | |
| Total payout | Ł45,617 | Ł45,669 | |
| Yield | 8.0% | 8.0% | 3.7% |
25 year mortgage endowment
| Maturing 1.7.03 | Maturing 1.1.04 | Average rate of Inflation to Dec 2003 | |
|---|---|---|---|
| Guaranteed benefit | Ł15,036 | Ł15,036 | |
| Regular bonus | Ł20,934 | Ł18,255 | |
| Final bonus | Ł8,993 | Ł9,987 | |
| Total payout | Ł44,963 | Ł43,278 | |
| Target Amount | Ł30,812 | Ł30,812 | |
| Yield | 7.9% | 7.6% | 3.7% |
20 year pension (Ł200 p.m.)
| Maturing 1.7.03 | Maturing 1.1.04 | Average rate of Inflation to Dec 2003 | |
|---|---|---|---|
| Guaranteed benefit | Ł61,201 | Ł61,201 | |
| Regular bonus | Ł37,118 | Ł31,351 | |
| Final bonus | Ł12,991 | Ł13,324 | |
| Total payout | Ł111,310 | Ł105,876 | |
| Yield | 7.8% | 7.0% | 3.2% |
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.