Aviva cuts with-profits bonus rates

Aviva has reduced bonus rates on some of its with-profits funds, citing adverse economic conditions.

The changes, effective from 1 January, will see final bonus rates for unitised with-profits policies reduce by an average of 6%. Aviva said the reduction has been necessitated by falls in investment markets since July.

It said the regular bonus rate for conventional endowment policies in the ex-CGNU and ex-CU funds has also been reduced, by 0.5%.

Aviva has put in place a 0.25% rate reduction for unitised with-profits in the ex-CGNU fund and for unitised life policies in the ex-NULAP fund. This does not apply to those policies with a guaranteed regular bonus rate.

The insurer said its bonus rates for new business (2.5% for bonds, 3% for pensions and 2.75% for stakeholder pensions) remain attractive compared with current interest rates.

It added its "prudent" approach to managing with-profits funds has cushioned customers from hostile economic conditions.

"Our research tells us investment volatility is a significant concern for our customers," said Aviva propositions director Phil Willcock. "Thanks to the strength of our with-profits funds, we have been able to protect our customers from the full effects of the severe market volatility we've seen throughout 2011."

AWD Chase de Vere certified financial planner Patrick Connolly said although the bonus reductions will come as a disappointment to many policyholders, it is important to put Aviva's announcement into context.

"This trend is endemic across with-profits investments and it seems that, almost regardless of the underlying performance of with-profits funds, bonus rates and payouts will continue to be reduced for some years to come," he said.

Last month, Standard Life cut bonus rates on its UK with-profits plans in a move impacting about half of the insurer's total policyholders.