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NU extends endowment guarantee

Norwich Union is widening its guarantee to top up shortfalls on mortgage endowments to all its policyholders.

NU, which is cutting reversionary bonuses this year, says it will top up terminal bonuses on all with-profits mortgage endowments that do not meet their target, provided investment earnings average 6 per cent a year.

CGU introduced this promise to policyholders in January 2000 and, following the merger with NU, it is being extended to all NU policyholders. Now 1.4 million policyholders are covered by the guarantee.

Seven per cent of NU endowments were identified as falling within the FSA&#39s red category of a high risk of suffering a shortfall. All policyholders will now be told their policy is green, indicating low risk.

NU is blaming poor stockmarket performance for its decision to cut reversionary bonuses. Bonuses on with-profits pension policies have fallen from 6.75 per cent to 6.25 per cent while life with-profits bonds are down from 5.75 per cent to 5.25 per cent.

An NU 25-year endowment maturing this year will pay out £86,028, down from £89,518 last year, based on a male aged 30 paying £50 per month.

A CGU 25-year endowment will pay out £105, 291, down from £116,839, and a Commercial Union 25-year endowment will pay out £102,306 compared with £107,931 last year.

The announcements come alongside a call from NU to other life offices to make with-profits business more transparent. NU says it is committed to giving better explanations of charging structures, expenses, investment performance, financial strength and how bonus rates are arrived at.

Letters are being sent out to policyholders and IFAs to ask how communications on with-profits can be improved.

Sales and marketing director Peter Hales says: “The endowment promise is to instill confidence in customers and we can make it because of our strong fund. We want to be the champion for with-profits business. It will be a challenge but it is important consumers do not lose sight of the benefits.”


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