Endowment Changes by Norwich Union

Ray_Harrison

:eek:
Norwich Union Life & Pensions Ltd have sneakily introduced new rules for profits allocations to With Profits policies. The annual bonus system seems to have been stopped and replaced with a Final Bonus top-up system. Regrettably, the latter is NOT guaranteed, and can only be ascertained in the final few months of a policy's life. The policies were sold under the system whereby profits from the With Profits Fund were added annually to a policy in the form of regular bonuses based on both "Sum Insured" and "Bonuses to-Date", the Company's stated intent being to add between half and two-thirds of the profits made each year by the "With Profits Fund"; these bonuses being guaranteed additions to the final pay-out. The new system of sharing out profits through Final Bonuses cannot be assessed by the investor until the policy is close to maturity. Regular bonus payments over the past three years on "sum insured" have been NIL%, and on "Bonuses to-date" 0.5%, these despite profits by the fund of 9.1%, 8.4% and 13.2% over the same three year period. Am I wrong in viewing this as a rip-off, coming as it does so quickly after the misselling scandal? Has anyone else noticed similar, newly introduced rules cancelling regular bonuses by other insurance companies, or, is NU alone in its scheme? A formal complaint has been lodged with the Financial Ombudsman Service, but I fear they may have no teeth in this particular area, and my policy could well mature (March 2007) before anything can be done.

dunstonh

A formal complaint has been lodged with the Financial Ombudsman Service,

Who will take no action with it but return it to NU for them to respond.

I can't see what you think NU are doing wrong. By issuing lower annual bonuses and leaving the bulk to the final bonus makes a lot of sense. It's not unusual now and it actually benefits many investors as well as giving the fund far greater protection. The "old" way of paying higher annual bonuses which couldnt be afforded was the downfall of many insurance companies (over 70 closed their doors for new business in last 5 years).

Under the "old" way someone investing in January, say before a stockmarket crash, would be treated almost exactly the same as someone who invested in Octover, say after the crash and as the recovery started. Why should they get the same annual bonus? The revised method allows the latter case to get a higher terminal bonus than the first case.

EdInvestor

Most of them are switching over from regular to terminal bonuses.The reason for this is the FSA's new rules under which all guaranteed amounts have to be reserved for in safe assets like bonds and cash, not riskier assets like shares and property.[The rules follow the collapse of Equitable which did not have enough reserves to cover its guarantees].

The new rules mean your policy is safer than before, but at the cost of lower returns as the asset allocation of the With profits fund is now balanced more to the safe bond side than the riskier equity side.

To stop that balance getting even worse, the insurers are trying not to increase the amount of guaranteed fund that has to be covered.

There should be little effect on a policy maturing in less than a year.

payless

its nice to see the bonuses added yearly, although suppose so long as you get the correct " average return" ...