Windfall to boost declining policies

Published on Saturday 9 February 2008 16:31

MORE than a million Norwich Union policyholders are to receive a special bonus which could boost their endowments, pensions or bonds by 10% over the next three years, and may go some way to freeing them from the burden of big financial black holes.

The windfall is being released because the company says it has moved part of its investments into lower-risk holdings, and does not need so much capital to back its promises to customers.

And there could be more money on the way. This bonus is part of an ongoing process of unlocking a treasure chest valued at 5.5bn held by the company. This excess cash, known as the inherited estate, was built up over the years, not least as a result of mergers with General Accident and Commercial Union.

Policyholders will share 2.3bn through this distribution. The company is still arguing with its policyholder advocate Clare Spottiswoode about what should happen to the remaining 3bn-plus.

But not everyone is on target for rich pickings. To qualify for the bonus, customers must be members of the company's main CGNU or Culac funds, which were formed following the mergers with General Accident and Commercial Union.

The original Norwich Union savers, now locked in the closed Norwich Union life fund, get nothing. An NU spokesman said this was because they received a free share windfall when the company demutualised.

Furthermore, customers must be holding policies on January 1, 2008, 2009 and 2010. On these dates a bonus worth a little over 3% will be added to the value of their contracts.

However, not everyone is happy. Spottiswoode, who was appointed as a policyholder advocate in 2006 to examine ways in which the entire inherited estate could be distributed fairly between customers and the company, says the money should have been paid in one lump sum and in cash. She is concerned that many policyholders whose contracts mature before the end date will miss out.

Spottiswoode said: "I am disappointed the payment is to be made over a three-year period. The surplus funds are available now, yet policyholders whose policies mature before the end of the three years will not be paid the full amount.

"I have also pressed for this special distribution to be backdated to those policyholders whose polices matured naturally after November 21, 2006, as a matter of fairness. I have raised these matters with the company and the Financial Services Authority, but my views have not been adopted."

Negotiations are continuing over the more than 3bn remaining in the inherited estate. Spottiswoode intends to press for any future bonuses to be distributed via a cash payment.

But the bonuses will come as a boost for the million Norwich Union policyholders on target for a windfall, and it will help lift the maturity values of customers whose policies come to the end of the term this year.

For example, a mortgage endowment customer who has paid 50 monthly into the CGNU fund for the past 25 years was due to have picked up 45,911. Instead his lump sum will be boosted to 47,565 thanks to the bonus. Elsewhere in the group, the old Commercial Union fund (Culac) was due to produce 39,321 (down from 43,697 last year), but this year investors will get 40,745.

In contrast, fellow policyholders in the closed Norwich Union fund will only pocket 39,357 (down from 42,133).

However, these payouts will raise returns to policyholders, pushing NU up the performance league tables. At most other companies, payouts continue to slide. Clerical Medical mortgage endowment will produce a 39,401 nest egg, compared with 43,687 last year. Standard Life only manages 37,763, and Friends Provident 36,425 (down from 37,540).

Again, CGNU pensions customers are celebrating their special bonus. A 20-year 200 monthly premium pension will now produce 116,043. This compares with 104,976 from the old Norwich Union fund.

Similarly, the value of investment bonds have been boosted. NU will now turn 10,000 into 15,994 over five years or 16,200 over 10 years.