Aviva keeps most of with-profits bonuses on hold

Insurance giant Aviva this week announced it was keeping the majority of the bonuses it pays its 2.1 million with-profits customers on hold.

The group said the regular bonuses paid on unitised life and pension policies taken out since 2003 would be maintained at 2.75 per cent and 3.25 per cent respectively.

Bonuses on conventional polices were also held, with the exception of those paid to customers in the ex-CGNU fund, which will be reduced by 0.5 per cent, to bring payouts in line with the value of the fund.

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The insurer is also cutting the returns paid on its with-profits income bonds from 3.25 per cent to 2.5 per cent to bring the rates in line with changes made to growth bonds during 2009.

The majority of the final bonuses paid to people with conventional life and pension policies whose investment is maturing have been cut, but the group has increased rates slightly for people with unitised versions of the policies.

Eligible policyholders will also benefit from the final special bonus the group is making, which will increase their policy values by 3.16 per cent, bringing the total uplift as a result of the payments to 10.7 per cent.

People who invested 50 a month into a 25-year endowment policy in the ex-CGNU fund will receive a final payout of 36,979 if their policy matures this year.

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Those who invested 200 a month during the past 20 years into a pension policy in the same fund can expect a maturity value of 89,903.

David Barral, chief operating officer at Aviva, said: "The vast majority of customers who have invested in the Aviva with-profits funds have received higher returns than if they had invested in an average bank or building society account and have been protected against the full impact of volatile investment markets." But Laith Khalaf, pensions analyst at Hargreaves Lansdown, expressed disappointment with the returns Aviva was paying its policyholders. He said: "In a year when the sun was shining on the UK stock market Aviva has failed to make much hay for its with-profits investors. The good news is Market Value Reductions are coming down, so those who wish to leave the fund can often do so at little cost."

With-profits are long term savings policies that aim to smooth out stock market volatility by holding back some returns in good years and paying them out in bad ones.

They are often taken out as a pension or an endowment to pay off a mortgage.

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But Aviva admitted that only 4 per cent of people with an endowment that was due to mature this year had policies that were on track to meet their target sum, even once its mortgage endowment promise was taken into account.

Under the promise, which benefited 22,000 people during 2009, the group states it will top up any difference between a policy's maturity value and what the group projected the maturity value would be when it wrote to customers in 1999.

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