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Aviva to pay £2m compensation over misleading guarantee claims

Aviva is to pay over £2m compensation to 40,000 pension savers after they were misled over the existence of a capital guarantee within one of the firm’s funds.

Investors in the Aviva Deposit Fund are to receive on average £55.26, meaning Aviva is paying out over £2m, as the provider admitted old marketing material implied fund values could not dip below the level of the original investment.

Aviva says although the underlying fund value does not go down, bank interest rates are so low that investments can go below the level of the original investment once charges are deducted.

The insurer is only making payments to customers whose fund value fell below their original investment.

Customers have also been told their investments will be subject to market fluctuations. Aviva says this is how the fund was originally intended to work.

An Aviva spokeswoman said: “As part of our continual review of our products we are currently mailing our Aviva Deposit Fund customers to emphasise that their investments can fluctuate according to market conditions, and that these type of funds are intended as a shorter-term investment. This is really important given the current market conditions and low interest rates.

“As part of our review we also identified that although our terms and conditions were correct, that we had implied in some of our older marketing literature that customers’ funds would not fall below the amount they had invested. This was not correct and we apologise for any misunderstanding. Our focus is always to correct any error we have made with a fair resolution for our customers.”

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Comments

There are 3 comments at the moment, we would love to hear your opinion too.

  1. I still remember the GAR’s stated quite explicitly to be a feature of Provident Mutual’s Pension Assured fund (e.g. 9:1 for a male aged 65), with which the policyholder could purchase an investment linked yet guaranteed annuity. It could go up but never down. Indeed, they were a specific and attractive marketing feature of the product yet, once Aviva took over all those old policies, they were quietly yet quite deliberately diluted so as to render them virtually useless.

    I tried complaining but was just fobbed off and sadly I just could not locate one of the old Provident Mutual leaflets extolling the virtues and value of this feature. If anyone out there has one, I’d very much appreciate a copy.

  2. I’m just doing a review for a client with some money in the Pension Assured Fund and Aviva seem to have no literature on this fund, with most of their staff not even knowing what the fund is. In fact one was adamant that it wasn’t a fund but a type of personal pension!

    As someone who used to work for GA/CGU/NU I recall being briefed on PAF when Provident Mutual was taken over and it was actually described to us as a “ratchet fund” where the value could only go up or remain level.

  3. In many ways, it was more like a unitised with profits fund, in that at the normal retirement date, each unit was worth £1, whilst asset growth was provided by way of bonus units added. So that at times of rising stockmarkets, bonuses units were created, whilst during falls, no units were added. There were also 2 different bonus rates – one for basic units secured by premiums and one for bonus units.They also had the ability to impose a penalty called a Market Depreciation Discount, like an MVA, to reduce the value if someone transferred or retired early during prolonged market falls.

    @ Julian – the guaranteed annuity rate would have been applicable to the specific Provident Mutual product, not the Assured fund. Although I only dealt with them from 1990 onwards, I’ve looked back on our first plans which used them, from 1988 onwards into S.226 plans, and the literature & quotes for the plan doesn’t make any reference to guaranteed annuity rates, so Provident Mutual must have ditched a GAR on S.226 plans before then. I’ve doubled checked with an even more long term colleague, and he also feels the GAR would have been on the plan, not the fund.

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