Aviva slashes with-profits exit fee
Aviva has reduced the exit fees on its with-profits funds in response a to “sustained improvement” in overall values.
Exit fees – known as market value reductions (MRVs) - are the charge levied by with-profits providers on policyholders who leave the investment early. Aviva has cut these charges by an average of between 1% and 3%, depending on the year the investment was taken out. However, despite the cuts, some policyholders still face a shocking 18% charge for exiting a policy early.
David Barral, marketing director at Aviva, says: “We have been monitoring MVR levels on a weekly basis and the sustained improvement in the overall value of the with-profit funds means we are pleased to reduce MVR rates.”
A policyholder who took out a with-profits fund in 1997 would now face paying a 5% fee for leaving early, down from the previous charge of 8%. However, investors who bought just three years later in 2000 still face paying 18% if they leave early, although this is down from the previous 20% charge.
The penalties have been reduced in response to the stockmarket improvement seen since March this year. However, Aviva warns that the stockmarket remains well below the last peak seen in October 2007.
Last October the FTSE 100 peaked at around 4,350 pints, falling to a low of around 3,450 in March. It closed yesterday at 5,243 points.
With-profits funds aim to offer investors consistent or ‘smooth’ returns, with funds from stronger years reserved to cover any losses seen in other years.
The cuts apply to investors in Aviva’s unitised with-profit funds - formerly known as CGNU, CULAC, and NULAP funds – who bought their units over the past 20 years.
With-profits funds are administered by life assurance companies and access to them is through the life company’s products such as bonds, endowments and pensions. Your monthly contributions are pooled with other investors’ money and invested in a mixture of shares, bonds, property and cash. Each year, a “reversionary” bonus (a declared percentage) is added to your investment and a large part of the policy’s final value depends on these bonuses during the investment period. In years when the with-profits fund performs well, some of the return is held back and paid out in years when the fund does badly and this “smoothing” process makes with-profits investments unique. When the policy matures, the life company may pay a discretionary “terminal bonus”.
A market-weighted index of the 100 biggest companies by market capitalisation listed on the London Stock Exchange. It is often referred to as “The Footsie”. The index began on 3 January 1984 with a base level of 1000; the highest value reached to date is 6950.6, on 30 December 1999. The index is “weighted” by how the movements of each of the 100 constituents affect the index, so larger companies make more of a difference to the index than smaller ones. To ensure it is a true and accurate representation of the most highly capitalised companies in the UK, just like football’s Premier League, every three months the FTSE 100 “relegates” the bottom three companies in the 100 whose market capitalisation has fallen and “promotes” to the index the three companies whose market capitalisation has grown sufficiently to warrant inclusion. Around 80% of the companies listed on the London Stock Exchange are included in the FTSE 100.