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Deal or no deal

After what has been an extremely drawn out process, Aviva and policyholder advocate Clare Spottiswoode have finally agreed on a renegotiated reattribution deal which sees pay outs to policyholders slashed in half.

While Spottiswoode insists the deal is a top-notch one, the average pay out is now £500 compared to the £1,000 offered back in July, which will inevitably disappoint policyholders.

Yes, the fund value has dropped significantly since last summer – from £2.1bn to £1.4bn – but some critics have slammed Aviva for dragging its feet on the deal which it kicked-off in 2006.

Hargreaves Lansdown points out that had the deal been done 10 years ago the windfalls would have been much more generous.

It adds the drop in payments is disproportionate to the reduction in the fund value, thus favouring shareholders.

Aviva’s share price shot up 11 per cent yesterday to close at 338.5p, so clearly investors were pleased with their end of the deal.

Pensions analyst Laith Khalaf says: “Shareholders are paying less for an asset that has fallen in value, no one can doubt the logic in that.

“But the proportion they are paying seems to have decreased despite the fact that their potential upside is greater given lower market values.”

Other critics have attacked the FSA for being lax in its rules on inherited estate ettiquette, particularly those allowing shareholders to “plunder” orphan funds for their own benefit.

Spottiswoode herself is leading the regulator-bashing, claiming the FSA is “undoubtedly company-focused in its approach rather than policyholder-focused”.

She says: “We got a good deal for policyholders in the circumstances but it would have been significantly more if the FSA had different rules.

“The regulator allows companies to use inherited estates to pay for things that they would otherwise have to fork out for themselves and that just does not seem right.

“This has been going on for years so the estate would have been much bigger if the FSA had not allowed this activity in the past. Given the size of this deal, it would have made quite a difference.”

Consumer champion Which? agrees.

Chief executive Peter Vicary-Smith says: “The FSA’s continual failure to defend policyholders’ interests has cost them a substantial amount of money.

“It has effectively looked the other way while Aviva plundered the inherited estate to pay shareholder tax bills, subsidise new business, pay misselling compensation costs.”

What do you think, are clients getting a raw deal?

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Comments

There are 5 comments at the moment, we would love to hear your opinion too.

  1. Aviva deal agreed by Spottiswoode
    The Inherited Estate is invested identically to the rest of the With-Profits fund, so it should perform identically. Aviva published the value of the Inherited Estate at £5.4bn on 30th June 2007. The cost of the Special Bonus is £2.4bn in total, which was removed on 31st December 2007. That should leave £3bn in the inherited Estate. I have it in writing from Aviva that the annual net return for the With-Profits Fund in 2007 was +4.8% , so the inherited estate should be valued at £3bn on 31st December 2007. The Fund made a loss of -11.9% in 2008, therefore the Inherited Estate should be valued at £2.643bn, and not £1.4bn. Why is there an apparent shortfall of more than £1.2bn?

    How can a so-called “advocate” manage to agree a deal in July 2008, worth 47.61%, and then renegotiate this so that it is now worth just 41.66% (based on Aviva’s figures)?

    Policyholders are being preyed upon by financial vultures whilst we’re held down by Spottiswoode and the FSA. It is a national scandal!

    The Aviva reattribution is the first time the FSA’s reattribution regulations have been trialled, and Spottiswoode holds the pivotal role. If she knows that they don’t work and/or they are unfair to policyholders, then she should REFUSE to complete the reattribution. But, oh no! That would mean that she might have to walk away from her £250k per annum salary. Instead 1 million policyholders get stitched up because Spottiswoode has agreed a deal which she KNOWS to be unfair to the policyholders she supposedly represents. It is insulting to policyholder that she now starts openly attacking the FSA. It is pure hypocrisy on her behalf. How can policyholders be expected to place any trust in her?

  2. Unfair? The FSA don’t know the meaning of the word!
    The SFA (oops!) wouldn’t know fairness if it slapped them in the face! Apparently they didn’t understand the mutual principle, forcing de-mutualisation on insurers (through the back door). This is a major national scandal though, unfortunately, most people don’t understand that they’ve been ripped off. Then the FSA introduced retrospective rules on mis-selling and didn’t allow de-mutualisation handouts to count towards what policyholders received. Now this! It’s a total disgrace: Aviva, the FSA AND Mrs Spottiswoode should be thoroughly ashamed. Quote me happy? No chance!

  3. Deal or no deal
    Insurers take enough “bashing” from the media and “peoples’ champions”, such as Which? etc. At least Aviva (Norwich Union) are doing something about this situation. Why don’t you focus your comments on this upon companies who are doing absolutely nothing about distributing this windfall money to their actual policyholders, such as Prudential?

  4. Have the Policyholders been misled?
    The policyholders were told that they would receive the reattribution over a period and would not receive all of it if they pulled out in the meantime. No doubt influenced by that representation many policyholders left their arrangements in place to qualify them for the benefits they were then told about. In the meantime as the article confirms not only has the fund reduced but also the with-profits fund so by hanging on the policyholders have suffered a double wammy. That should not be allowed to happen after the event.

  5. Merit of comments above
    All teh above comments have merit and to some extent are accusations that require answering/justification or clarification by each party criticised above i.e Aviva/NU, the FSA and Ms Spottiswode too otherwise their failrure to defend or answer the criticisms are damning in themselves.
    And yes, the Pru are/were just as bad, but lets deal with the one in hand at the moment and resolve the Pru once this is sorted.

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