A MILLION Aviva policyholders who bought with-profit contracts with the old General Accident and Commercial Union companies are in line for a cash windfall of around £1,000.
But the giveaway has also shone a spotlight on unsavoury skeletons in the with-profits cupboard.
Aviva was able to release the cash because over the years its funds had built up more capital than needed to support the promises made to endowmen
t and pension policyholders.
Policyholder advocate Clare Spottiswoode, appointed to protect investors' interests, put the excess figure at about £5bn. However, the company also had a claim to a share in that pot.
Initially she negotiated an additional bonus worth roughly 10% of the value of current policies, which would have removed £2.1bn from the fund. To qualify for this uplift, investors must hold with-profits contracts on January 1, 2008, and on the same date in 2009 and 2010.
The company also pocketed some £200,000. However, after this distribution was announced, stock market turmoil wiped £500,000 off the so-called inherited estate, leaving less to be shared out.
After further negotiations, the company agreed to release another £1bn for distribution among a million customers, in return for them giving up their membership rights within the fund.
To qualify for a payout, you must have had a with-profits policy in force on November 21, 2006, and it must still be running. However, if it had matured naturally or terminated after a death claim then policyholders or their estate would still be eligible.
Less welcome have been the disclosures uncovered during this process of shady practices by with-profit funds, with the approval of watchdogs at the Financial Services Authority.
Though policyholders have a 90% legitimate claim on the inherited estate, companies have been using these treasure chests as their own private slush fund.
They have exploited the inherited estates to pay for pensions mis-selling claims, settle taxes, to meet the costs of new business and to make investments. So it is good to see insurers putting their hand in their pocket to make policyholders, rather than shareholders, richer for a change. One wonders how regulators can have allowed things to slip for so long.
Pension progressWHEN it comes to pensions, it doesn't pay to believe what politicians tell you. In the unlikely event they might ever stumble across the truth, they certainly wouldn't share it with you.
This month we celebrate the centenary of the introduction of the state pension, which paid five shillings a week to everyone over 70 provided they were "of good character".
Yet from the outset with pensions, nothing has been as it seems. The motive was good. As Britain's wealth grew during the Victorian era, so did the numbers literally starving in the streets. Elderly women were often left destitute.
So David Lloyd George launched his non-contributory pension for the over-70s in 1908, only that didn't last long. Soon we were all paying for them. In 1928, Neville Chamberlain introduced National Insurance contributions. Tax breaks were made available to encourage occupational schemes which they said would cost less than £100,000. Wrong again. Last year private pension tax relief topped £17bn.
In 1948, William Beveridge took the contributory principle further, introducing a flat-rate pension at 65 in return for a flat-rate NI payment. The problem was again that the sums didn't add up. The flat-rate contribution wasn't enough to pay a big enough pension to keep people off means-tested benefits. By 1951 a million pensioners were claiming other forms of state help.
We moved onto higher contributions for the better paid, and in 1978 we were promised earnings-linked pensions, known as Serps. But it wasn't long before those sums didn't add up either, and Serps was ditched.
The latest thinking, following Lord Turner's pensions review, is that we will have to work until at least 68, probably 70. And we must all save, unless we have private arrangements via the Government's latest pensions baby, Personal Accounts.
Yet again we are embarking on a revolution when we know in advance it's another piece of political fiction.
How will workers feel after paying for years into a Personal Account to discover they are no better off than if they hadn't bothered at all?
What will happen when the first generation who have conscientiously paid into money purchase schemes retire, to discover their pension is a pittance?
As Serps gets flattened to invisibility, how will those who have worked for 50 years feel about getting the same state pension as those who never got out of bed?
The full article contains 782 words and appears in Scotland On Sunday newspaper.
