The deal will give one million policyholders the option of an average one off cash pay-out of £1,000 in return for sacrificing their right to future pay-outs from the inherited estate.
The pay-outs to policyholders of the CGNU Life and CULAC fund, which have a combined value of £2.1bn, will come from parent company Aviva’s shareholder funds, not the inherited estate or the with-profits funds.
This means that the inherited estate will remain in the with-profits funds, until it is no longer needed, to ensure the funds stay financially strong.
Earlier this year Aviva announced that £2.1bn of the inherited estate would be given to policyholders in the form of a special distribution.
The combination of today’s offer and the special distribution means that an equivalent of around 70 per cent of the value of the inherited estate would be released to policyholders, if all policyholders voted to accept their payout.
Norwich Union Life chief executive Mark Hodges says: “This is a great offer. We believe that it represents good value for 99 per cent of policyholders and almost all of the cash payments will be tax-free.
“Most importantly, we recognise that policyholders have a choice and everyone will be entirely free to make their own decision on whether or not to accept the offer.”
The cash payments will not depend upon a majority vote. All policyholders, regardless of whether they accept the cash offer, will continue to receive their normal bonuses and the payment will have no impact on the security or performance of their investment.
The offer will only be made following a review by the FSA and will be subject to board and High Court approvals.
The FSA says its preliminary assessment suggests the deal is a fair one.
Which? chief executive Peter Vicary-Smith says: “Clare Spottiswoode has made the best of a difficult set of circumstances. Whilst, most policyholders will probably welcome this payout, they could have received more* if the FSA had regulated this area effectively.
“The FSA now needs to ensure that the deal contains sufficient safeguards to protect policyholders’ interests. They must also implement the changes recommended by the Treasury Select Committee and ensure that Norwich Union are held to their estimates and projections which form the basis of this deal.”