The company says that while the guarantee has been extremely popular, continued volatility has made it difficult to price.
Money Marketing revealed in January that NU was reviewing the profitability of the guarantee due to soaring costs.
Advisers estimate that NU has 190,000 with-profits bondholders with the guarantee in its CGNU fund and £6.3bn invested but the firm says existing policyholders will be unaffected by the move.
NU introduced a 0.7 per cent guarantee charge in 2007, a year after the option was introduced. It moved from tracking the retail price index to the consumer price index in April 2008 when RPI was higher.
Marketing director David Barral says: “Credit spreads have been so volatile that it makes it very, very difficult to price the guarantees so the sensible thing is to remove the option at the moment. We recognise how attractive guarantees are, especially in the current market, so advisers can expect to see more from us when markets stabilise.”
Barral says the firm may introduce a tranche-based inflation-proof option in future, which would be more sustainable.
Cazalet Consulting director Ned Cazalet says: “Norwich Union was giving money away and I think they knew that all along. But when you look at what has happened to markets and the issues of reserving and solvency, if you are going to give money away, you have to have capital to play with.
“The cost of hedging has also gone up. These assets are still on red alert when it comes to uncertainty and volatility. As such, the market pricing for these sorts of guarantees is markedly higher now than it was a year ago.”
NU will accept pipeline business until May 1.