What exactly is Norwich Union’s reattribution and what do policyholders get?

Tomorrow’s newspapers will be brimming with the news that Norwich Union – or Aviva, as its parent company is called – will be making some nice cash payouts to policyholders in the CGNU Life and CULAC with profits funds.  

The negotiations around these payouts have been dragging on for nearly two years now, partly victim to the great complexity of the rules surrounding such deals.

How much can policyholders expect?

You will see a £1,000 figure bandied around. This is the average cash payout resulting from today’s announcement for people who accept the offer. BUT, Norwich Union stresses that this is an average and not everyone can expect a payment that big. In fact the majority of people, 700,000, can expect to receive between £400 and £1,000. 

The average figure of a grand is boosted by those lucky 220,000 who will receive between £1,000 and £3,500. Almost all of these cash payments will be tax-free.

The payment depends on the size of the policy and how long it has left to run.

This comes on top of the £2.1 billion that NU announced earlier this year would be shared between policyholders (the ‘special distribution’). This one isn't a cash payout, but will increase people’s investments by around 10% over two or three-year period.

The payout announced today is paid for by shareholders, whereas the the special distribution coems from the inherited estate. This is the part of the with profits fund over and above that required to meet liabilities, but that insurers keep hold of for commercial reasons.

The two announcements add up to around 70% of value of inherited estate being released to policyholders, totalling £3.1 billion.

How do policyholders get hold of the money?

It is up to individual policyholders whether they want the cash payment – it is not subject to a majority vote.

Individuals who choose to accept it, give up your right to receive any possible future payouts from the funds' inherited estates.