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.