Aviva to pay with-profit bonuses

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Aviva is reconsidering returning surplus money from its with-profits funds to policyholders, with one million customers liable to receive cash payments of up to £1,150.

The insurer is holding a conference to discuss whether the £1.4 billion ‘inherited estate’ – the financial buffer built up over time – should be returned to policyholders. Earlier this year it dropped plans to reattribute this cash to its customers, in light of the stockmarket turbulence.

It is now reconsidering its plans, with policyholders likely to receive their money by late 2009. At the very least, people will receive a payment of £200, with 90% of eligible policyholders receiving between £200 and £1,150. However, policyholders will have the right to decide whether they want to accept the payment or not.

If they do take the money, they must give up their rights to any future payouts from the inherited estate. However, all policyholders - regardless of whether they accept the cash payout or not - will continue to have an interest in their with-profit fund, and as such will receive normal bonuses and payments.

Mark Hodges, chief executive of Aviva's UK life business, says the reattribution represents a “good deal” for customers. 

"We believe that giving customers the opportunity to benefit from a reattribution is the right thing to do and each one of them will have the opportunity to choose whether to accept our offer,” he adds.

Aviva has been working with policyholder advocate Clare Spottiswoode, who represents the interests of customers, to agree the deal. Previously, reattribution was expected to take place in summer 2009 with average cash payments of £1,000.

Spottiswoode says: "This is good news for policyholders after the turmoil in the financial markets that affected the plan announced last year.”

The one million eligible Aviva with-profits policyholders should expect to receive the details of the revised reattribution offer soon, including the amount they are likely to receive. They will be asked to complete a voting pack, on whether the want to take the payout or not, in June.

The size of payouts will depend on the average value of the inherited estate over the three-month period from June to August.

The estimated value is currently £1.2 billion – if this increases, customers will receive bigger payments. If smaller, then Aviva says it will not go ahead with the reattribution at all.

The majority of the cash payouts will be tax-free and Aviva says it expects to start making payments to policyholders in November 2009. Payouts will also be made from Aviva's shareholder funds, so the inherited estate remains in place as a financial buffer to the funds.

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