Aviva holds with-profits bonus rates

Aviva has held regular bonus rates for the vast majority of its 2.1m with-profits customers, as the country’s largest provider of the long term investments plans benefited from the market recovery.

In making its seasonal bonus rates update, Aviva said its main with-profits fund had grown by 6 per cent last year, compared with a loss of nearly 14 per cent in 2008, enabling it to hold bonus rates.

Bonus rates for Aviva’s unitised policies were maintained at 2.75 per cent, with regular bonus rate for new pensions held at 3.25 per cent. Offshore bonds rates stayed at 3.5 per cent.

Regular bonus rates for conventional policies, including endowments, were also maintained at previous levels, with the exception of ex-CGNU policies which were reduced by 0.5 per cent “to bring the guarantees on these policies in to line with the actual long term performance of the fund”.

With-profit income rates for new policies were cut to 2.5 per cent from 3.25 per cent.

There was mixed news for conventional life and pension policyholders, including endowments, who saw both reductions and rises in final bonus rates, which investors rely on as a final kick for their long term investments.

Final Bonus rates for unitised life and pension policies were increased slightly.

With-profits funds invest in a mix of equities, gilts and property and hold back returns in the better years to distribute to policyholders in weaker markets, a process known as “smoothing”.

Aviva said that in spite of the volatility of investment markets over the past two years, it had continued to give its customers “consistent and stable returns” and maintained that its funds were outperforming the average savings account and comparing favourably with the balanced managed sector.

“Customers who invested £10,000 in our investment bond 10 years ago would today receive £14,956, compared to a return from a typical savings account of £12,905,” said David Barral, chief operating officer at Aviva.

“This is equivalent to 4.1 per cent a year compared to 2.6 per cent from a typical savings account over the same period.”

However, analysts said Aviva’s fund performance was disappointing when compared with other stock market sectors, which saw double digit returns over the same period.

“Part of the reason for lacklustre performance in 2009 is the fact that the Aviva fund only has 39 per cent invested in shares,” said Laith Khalaf, pensions analyst at Hargreaves Lansdown, the independent financial advisors.

“‘In a year when the sun was shining on the UK stockmarket Aviva has failed to make much hay for its with-profits investors.”

The conservative investment strategies of other with-profits providers were also criticised.

Last week, Equitable Life announced it would increase the value of its with-profits pension policies by 5.5 per cent, with the reintroduction of an interim bonus and a one-off increase in policy values.

“Something is better than nothing but policyholders could have achieved better returns in other funds,” said Khalaf.

However, Khalaf said the good news for customers was that Market Value Reductions on Aviva’s policies were coming down so those who wished to leave the fund could often do so at little cost.

In addition, Aviva said that this year more than 50,000 of its customers would become eligible to surrender their policies without penalty.

The provider will write to its customers before their guarantee dates to bring these valuable guarantees to their attention.