Norwich endowment holders face new cuts

HOLDERS of long-term endowment policies with Norwich Union, Britain's largest insurer, will suffer another round of cuts to maturity payouts despite an 11.5% return for the group's £57bn with-profits funds in 2004.

Norwich Union - part of Aviva, which is headed by chief executive Richard Harvey - is lopping payouts on policies taken out more than 15 years ago by between 5% and 11.5%, similar to cuts made a year ago.

This means the total payout on a £50-a-month, 25-year mortgage endowment is now £52,576 against £59,444 a year ago and £63,819 in July 2003.

Holders of similar 25-year policies saw payouts decline by 10.8% a year ago against January 2003, when they reached £66,628. Norwich pointed out the target was £28,779 when such policies were taken out.

Its with-profits chief actuary, John Lister, said: 'The reduction is not comparing apples with apples. One should look at a 24-year policy maturing last year as it would have been taken out at the same time as a 25-year policy maturing this year. Broadly, it would then have gone up by 7%, paying out around £49,000 last year.'

Punters who took out 15-year endowment policies with the company saw maturity values fall 5% compared with a year ago, with payouts on a £50-a-month policy now totalling £14,409.

Norwich declared bonuses totalling £1bn for its three million with-profit policies during 2004. Lister estimated that 40,000 long-term endowments would mature this year.

Savers who took out policies during the poor equity markets of 2000 to 2002 were worst-affected and are broadly at 'break-even', meaning they would have been better off keeping their savings in cash at interest rates of about 4%.

The firm is continuing its commitment made in 2000 to assist policyholders facing a shortfall on their mortgage endowments.

Aviva has £57bn invested in its four with-profits funds, which saw an 11.5% pre-tax investment return thanks to heavy exposure to recovering UK equities - 42.9% of funds invested - and property, where it has 16% invested.