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Aviva cuts with-profits bonus rates

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Aviva has cut bonus rates for with-profits investors as the provider battles volatile investment markets.

Aviva has reduced the annual bonus rate for unitised with-profits policies in the ex-CGNU fund and unitised life policies in the ex-NULAP fund by 0.25 per cent.

There has also been a 0.5 per cent reduction in the regular bonus rate for conventional endowment policies in the ex-CGNU and ex-CU funds.

Final bonus rates for unitised with-profits policies, which were increased in July, have been reduced by 6 per cent on average due to falls in investment markets.

The total bonus rate on the with-profit income fund was reduced by between 0.25 per cent and 1.5 per cent depending on the year of investment.

The provider says reductions in bonus rates was necessary to “reflect future economic expectations and prudent management of the fund”.

Aviva propositions director Phil Willcock says: “Our research tells us that investment volatility is a significant concern for our customers.

“Thanks to the strength of our with-profits funds, we have been able to protect our customers from the full effects of the severe market volatility we have seen throughout 2011.”

Annual bonus rates for new business are now 2.5 per cent for bonds, 3 per cent for pensions and 2.75 per cent for stakeholder pensions.

Hargreaves Lansdown pension investment manager Laith Khalaf says annual bonuses are likely to remain muted for the foreseeable future.

He says: “Once promised they are guaranteed, which creates a liability that the insurance company has to meet come what may, and normally leads to less investment freedom for the fund. Insurance companies are therefore reluctant to offer decent size annual bonuses and are more likely to offer any rewards to investors through terminal bonuses.
“Many with-profits funds have also become more cautiously invested over the years. The Aviva and Friends Life funds are only around 50 per cent invested in equities. While this may suit more conservative investors or those approaching retirement long term investors seeking growth should probably have more equity exposure.”

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Readers' comments (11)

  • Hmmm

    Bonus rate 2.75% on Stakeholder and 3% on non-stakeholder

    How does that work again?

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  • Just another reason for not selling with profits

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  • Lazy reporting. What matters at the end of the day is how much did the customer invest, what did they get back and how does it compare to what else might they have invested in. The facts are that a £50 per month endowment over 25 yrs has delivered an equivalent of 5.6% p.a. net of tax, compared to 3.1% in a building society. £10,000 in a bond has delivered 4.4% p.a. net of tax outperforming 2.2% from the average building society account. It irritates me that the media focus is on payouts going down each year. Money left for 25 yrs in a bank up to last year would be worth less for the corresponding 25 yrs this year because rates have declined over time. Has anyone forgotten that interest rates were up around 13% 25 yrs ago? So come on MM, how about evaluating each Investment in a WP fund the same as you would any other. It's what the customer invests, what they get back and how it compares to cash (or under the bed) that counts.
    David Barral CEO Aviva UK Life

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  • Fair doos Dave. Good on ya

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  • David Barral
    "So come on MM, how about evaluating each Investment in a WP fund the same as you would any other. It's what the customer invests, what they get back and how it compares to cash (or under the bed) that counts.
    Well said David- MM cant evaluate this invetsment because they do not know how.
    MM is just becoming a rag with Nic Cicuitti and all.

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  • @ David. David, no one can evaluate WP 'funds' as they can't see through the smoke or around the mirrors. A cynic might say that with the selling scndals to come, Aviva needs to pump up its inherited estate to pay for the fines which will come when the banks start flogging this rubbish for them!

    And as for the Aviva sales lad comparing the performance to cash..... words fail me!

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  • wondering why these bonuses cant be worked out the same way that hester and diamond work theirs bonuses out.

    yearly profits at barclays were down 3% on last year, wonder what would happen if every-one cashed in their with profits and spent it, some of these firms might be looking to replace their directors wages with peanuts

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  • David, that is of course very interesting...however, there is a rather big elephant in the room that you too are ignoring.

    The people "buying" those endowments 25 years ago did so after being shown projected growth rates of 7.5%.

    Difference for those with mortgages, supposedly ending now, between what they got and what they expected, is more than 25%

    That's the disappointment...

    Although the good news is that the idiotic reporting of endowments resulted in tens of thousands of people cashing them in, spending the money on a new car/extension/holiday and subsequently we sit with a time bomb of daily mail readers with interest only mortgages from the C&G who will be slightly surprised when they get to the 25th year and realise they have nothing to pay off the mortgage with..

    Ho hum, stand by mortgage industry for that bad boy to explode.

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  • Aviva have steadily cut their bonus rates since 1998. Bonus on sum assured used to be around 3% , had dropped to 0.5% by 2000 or so and now gone. Bonus on bonus was abt 4%, dropped to 3 but this year, 0.5%. Total bonus has fallen by 75%. At the same time they report strong performance to shareholders. And this comes immediately after their machinations about the reattribution, both in the negotiation of it and the way they obscured payments in their bonus declarations. Aviva do not behave like trustworthy company should.

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  • Mr Barrel the main question to the Customer is not the amount invested and the return compared to other forms of investment , but the amount of shortfall on their target mortgage and the smoke and mirrors wording on annual statements that inform you of a possible addition based on the 2000 promise but no idea of the value of what that promise may entail

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