MORE than 1m Norwich Union Life customers were handed big windfalls last week, although tens of thousands of other savers will lose out because of the way the bonus plan has been structured.
Norwich Union, a division of the insurance giant Aviva, announced that it was paying a special bonus worth about £2.1 billion to 1.1m of its with-profits policyholders - people with mortgage endowments, pensions or investment bonds. Here, we explain all you need to know about the payouts.
Why is this special bonus being given? The special bonus comes from a surplus built up within Norwich Union's life funds over the years. The bonuses apply only to policyholders in the CGNU Life and Commercial Union Life Assurance Company (Culac) with-profits funds.
It all stems back to the Financial Services Authority (FSA) review in 2005 about what companies should do with their inherited estates. An inherited estate is money that has built up in a with-profits fund, and is more than is needed to meet current and future policyholder commitments and other obligations, such as tax and other expenses.
Norwich Union Life has freed up a part of its surplus - which in total is around £5.4 billion - in order to give the special bonus to policyholders.
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So why is this happening now? The insurer says that it has taken time to rearrange its assets to allow this part of the surplus to be distributed.
In effect this means that the insurer has replaced shares and property with high investment-grade corporate bonds and gilts. This creates lower overall investment risk for the funds, which in turn has led to a reduction in the capital required to enable them to distribute the surplus in the form of the special bonus.
Who exactly will benefit? About 1.1m people will benefit from the bonuses, which will be paid to them over the next three years. These are people who have Culac with-profits policies, and those who invested in the merged CGNU Life funds, whose policies were still in force on January 1 this year.
How much will I get? It depends on how much you have invested, and the underlying value of your policy. For example, someone who invested £30,000 in 2001 in a typical with-profits bond could expect a total bonus of £4,500 over the three years.
Someone with a 25-year endowment policy started in 2001, and who is paying monthly premiums of £50, will receive a bonus of £3,735. Roughly speaking, you will get around 10% added as a bonus to your policy over the three years.
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Who doesn't qualify for the bonus? Anyone whose policy matured before January 1 this year will not benefit from the bonuses. New policies issued after January 1 and premium increases to existing policies made after this date will not benefit either.
People with a Provident Mutual policy who chose to switch their investment into the CGNU Life fund will also not qualify. Norwich Union claims this is because it was only their investments that moved to CGNU, not their legal position or the guarantees outlined in their original Provident Mutual policies.
General insurance policies, such as home, car and healthcare cover, are also not eligible, and nor are stakeholder pensions. My policy matured this month - does that mean I qualify? Yes, provided you surrendered your policy or it matured on or after January 1, 2008. However, you will be eligible only for the first year's bonus. All policyholders whose policies mature before the end of the next three years will not be paid the full bonuses, which has provoked controversy, particularly as the surplus funds are available now.
When will I hear more about the Norwich Union Life special bonus? The insurer is writing to everyone who is affected, with letters going out from the beginning of March. Norwich Union Life reckons it will take until the beginning of April before everyone has received a letter.
Will shareholders see any benefit? Yes. In addition to the bonus payments to policyholders, which make up 90% of the total £2.3 billion being distributed, Aviva is also paying 10%, equivalent to £230m, from the distribution of assets into shareholders' funds. Shareholders will receive the funds in three tranches of additional capital over the next three years.
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Sounds like a good deal overall? Yes and no. Of course it's good news that policyholders are getting something back, but it is frustrating that the money is being given back over a three-year period.
Policyholders whose plans have matured since November 2006, when the life company first announced its intention to reattribute the surplus, will also lose out, as the special bonus is not going to be backdated.
It is also worth remembering that because Norwich Union has switched into safer investments, this could potentially limit future investment growth, which may have an impact on future bonuses.
What about the rest of the surplus? We don't yet know what is going to happen to the rest of the estate, which is worth about £3.1 billion. This is now being negotiated by Aviva and Clare Spottiswoode who was appointed in 2006 to represent the interests of its policyholders.
Aviva this week put in a revised "reattribution" offer to Spottiswoode, and wants policyholders to receive a cash payout in return for them giving up the rights to any future payouts from the estate.
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However, Spottiswoode wants an offer that does not overreward shareholders, given that the money in the inherited estates has accumulated purely from policyholders.
It is therefore likely to be some time before policyholders find out what is going to happen to the remaining inherited estate, although Aviva is putting pressure on Spottiswoode to respond to the offer by the end of the month so that it can aim to pay electing policyholders before the end of the year.
Where can I go for further information? Norwich Union has a telephone helpline and a website address to give policyholders more detailed information. The telephone number is 0800 051 1550 and the website is norwichunion.com/fundtransfer.
For more information about Clare Spottiswoode and her role as policyholder advocate, visit policyholderadvocate.org.
ENDOWMENT SHORTFALL DAMPENS BONUS JOY
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ALICE HUNTER, 54, from Sherborne in Dorset, will receive the special bonus from Norwich Union Life over the next three years, but is upset it will not cover the expected shortfall on her endowment.
Hunter, a part-time bookkeeper and secretary, took out her policy in 1991 with General Accident which then became part of CGNU. It had a projected maturity value at the outset of £15,000.
However, she has received a red warning letter from Norwich Union, notifying her that the policy is likely only to produce in the region of £10,000 when it matures in 2011.
Hunter said: 'I'm pleased to be getting the bonus, although I don't understand why it isn't all paid out at the same time.'