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The answer is blowing in the windfall

Some advisers believe that Norwich Union with-profits policyholders should not hold out for windfalls from the reattribution process but should move their cash now.

After many months of negotiations, Aviva recently agreed a deal on payouts with policyholder advocate Clare Spottiswoode.

Aviva estimates that 700,000 policyholders can expect to get between £400 and £1,000 in windfalls. A further 220,000 will receive between £1,000 and £3,500 in the reattribution process which is expected to be completed by summer 2009.

This is in addition to £2.1bn in special distributions announced earlier this year which will be phased over three years.

Eligible policyholders are defined as those who have an in-force policy invested in the CGNU Life or CULAC with-profits funds on November 21, 2006, as long as the policy is still in force on the day that reattribution takes place. Those whose policies matured between November 21, 2006 and the reattribution date are also eligible for payouts.

Policyholders essentially have to make two decisions over the next few months.

The first is whether they want to stay in with-profits in light of falling bonus rates, poor returns and the possible reintroduction of market value reductions. Second, if they do stay in with-profits, each policyholder can choose whether to accept or reject the reattribution offer.

If they accept the offer, they will give up their right to any future payouts from the inherited estate. They also have the option to reject the offer, which means they would effectively be in a similar position as if reattribution had not happened.

Worldwide Financial Planning IFA Nick McBreen says the reattribution is the equivalent of “a sideshow at the fair” and should not influence decisions over whether to stay invested in with-profits.

He says: “The reattribution payouts are not a reason to influence your decision on with-profits. This is a much bigger-picture decision. Do not get distracted by the goodie bag that is being offered. These funds have appalling bonus rates and poor returns.”

Towry Law technical liaison manager Michael Greenwood believes with-profits is not an appropriate investment for the majority of consumers and advises them to review their holdings0.

He recommends proper asset allocation and the use of more tax-efficient wrappers to allow for greater flexibility as a better alternative to with-profits.

Greenwood says: “The proposed reattribution is structured so policyholders are obliged to stay in the fund if they want to benefit. They do not know what they will receive and are at the behest of Norwich Union which is able to change their bonus policy or increase MVRs at any time.”

Anand Associates financial architect James Brooke says he has never been a great fan of with-profits and has only recommended it a handful of times over the past 20 years. He says it is possible to get the same or better results with a properly diversified portfolio while avoiding MVRs or other exit penalties.

However, he says if policyholders are already in the fund and are in line for a payout, it may be better to stay and take what is being offered.

Brooke says: “It is a case of analysing what the asset allocation in your portfolio should be versus what the with-profits asset allocation is and deciding whether or not you are being suitably compensated for the difference in returns by the reattribution payouts.”

Informed Choice joint managing director Martin Bamford says the reattribution process is just another example of how with-profits has become too complex and opaque.

He says the reattribution deal is positive in the sense that the combination of payouts and the special distributions means that policyholders are being given back 70 per cent of the value of the inherited estate.

The decision to stay in the funds will be down to individual circumstances but Bamford says the voting process is good because it puts the control in the hands of the consumers.

That decision may be influenced by the size of the payout that a policyholder can expect. Bamford says if it is a few hundred pounds, it may be a harder decision for policyholders than if the payment is in the thousands.

Bamford says: “If you are having £1,000 put in front of you, it is difficult to say no, particularly in light of the current economic climate. I think it is going to be a fairly easy decision in that sense for many people.”

Hargreaves Lansdown head of financial practitioners Danny Cox says the reattribution process makes it difficult to advise clients on with-profits.

He says although it is good that policyholders get to decide whether or not to take up the reattribution offer, it will be an administrative nightmare for Aviva.

Cox says: “Aviva has not got a great track record on service and it is still trying to sort out problems with its wraps and computer systems, so there could be problems with this.”

At the time when the special distributions were announced earlier this year, there was criticism from many quarters that the phased nature of these payouts was a crude retention strategy.

Cox still believes this is an important consideration and says if a policyholder has a £100,000 with-profits policy, then it is barely worth sticking around for various small payouts until 2010 and they may be better off if they put their money elsewhere.

He says: “Policyholders need to decide whether with-profits is the right investment for them to be in. Who knows what the market will do over the next two or three years. With-profits has a low exposure to equities and if stockmarkets recover, policyholders will lose out on those potential returns.”


Summer 2008

Norwich Union and the policyholder advocate agree that a reattribution offer should be put to eligible policyholders

Autumn 2008

Initial court hearing to review Norwich Union’s proposed reattribution and fund transfer scheme

Winter 2008/spring 2009

Policyholder election period

By December 2008

First special distribution bonus applied

Spring 2009

High Court hearing

Summer 2009

Payment to policyholders who accept Norwich Union’s reattribution offer

By December 2009

Second special distribution bonus applied

By December 2010

Third special distribution bonus applied


The pension marathon

The final nail has yet to be hammered in the final-salary coffin but it is getting closer by the day. The revelation that pension scheme deficits of £41bn have reappeared will trigger more closures.


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