Aviva Hold With-Profits Bonus Rates

TEP - 12 January 2010

Aviva has held regular bonus rates for the vast majority of its 2.1m with-profits customers, as the country’s largest provider of the long term investments plans benefited from the market recovery.

In making its seasonal bonus rates update, Aviva said its main with-profits fund had grown by 6 per cent last year, compared with a loss of nearly 14 per cent in 2008, enabling it to hold bonus rates.

Bonus rates for Aviva’s unitised policies were maintained at 2.75 per cent, with regular bonus rate for new pensions held at 3.25 per cent. Offshore bonds rates stayed at 3.5 per cent.

Regular bonus rates for conventional policies, including endowments, were also maintained at previous levels, with the exception of ex-CGNU policies which were reduced by 0.5 per cent “to bring the guarantees on these policies in to line with the actual long term performance of the fund”.

With-profit income rates for new policies were cut to 2.5 per cent from 3.25 per cent.

There was mixed news for conventional life and pension policyholders, including endowments, who saw both reductions and rises in final bonus rates, which investors rely on as a final kick for their long term investments.

Final Bonus rates for unitised life and pension policies were increased slightly.

With-profits funds invest in a mix of equities, gilts and property and hold back returns in the better years to distribute to policyholders in weaker markets, a process known as “smoothing”.

Aviva said that in spite of the volatility of investment markets over the past two years, it had continued to give its customers “consistent and stable returns” and maintained that its funds were outperforming the average savings account and comparing favourably with the balanced managed sector.

“Customers who invested £10,000 in our investment bond 10 years ago would today receive £14,956, compared to a return from a typical savings account of £12,905,” said David Barral, chief operating officer at Aviva.

“This is equivalent to 4.1 per cent a year compared to 2.6 per cent from a typical savings account over the same period.

The group's with-profits results, showed things looking up slightly for mortgage endowment policyholders and saver.

Mortgage endowment holders who have invested £50 a month in the Aviva Life and Pensions UK with-profits sub fund, (formally known as NULAP) for the past 25 years will have seen a return of 4.6% per annum net of basic rate tax compared to 3.7% from an average savings account.

The payment to the customer would be £27,884, which Aviva claims is £3,422 or 14% higher than the amount returned from an average savings account.

Customers invested, over 25 years, in Aviva's main with-profits fund, (formally known as the CGNU fund) will receive equivalent to 6.6% per annum, net of basic rate tax, giving them a value of £36,979, or 51% higher, than the amount returned from an average savings.

While the best 20-year pension policy, the ex-CGNU fund, maturing today delivered average annual growth of 5.9%.