I took out a with profits bond with CGU Life in 1999. This policy matures towards the end of 2009. A number of investment companies including CGU Life are joining forces in this new Aviva Company. I have been asked to vote in the reattribution of Aviva Life and I have been offered a small financial incentive called the “The reattribution Offer”. If I accept the offer, I will give up my interests in any potential future special distributions from the inherited estates, (money built up in funds over a long period of time) of the company. As share values are at a low ebb at present and as my policy matures this year:
Should I accept the offer? Yes or No
I agree with dishwasher. If you're not in it for the long haul then take the offer - you may need to stay in the fund for another 10 years+ to benefit from a further special distribution.
I'm a Chartered Financial Planner and one of the areas I specialise in is advice on With Profits policies. To help policyholders in Aviva factor in everything they need to know about making this decision I've set up a website at reattribution.com.
Should I leave my money in the bond for another year and wait for a recovery in the markets as any growth developed on the policy has now evaporated? Should I cash in when the bond matures later this year?
This is quite a complicated answer but you should seriously consider cashing-in your policy in January.
Your particular With Profits Bond has a 10th anniversary guarantee. This means that they guarantee to pay you back the face value of your investment on that date. Let's imagine you invested £10,000 and on paper it says it's worth £15,000. Although that's what it says it's worth, if you asked for your money back today they would give you a value that reflected how well the fund had actually grown over that period rather than what it says on paper, a figure likely to be around £12,500. This is what's called a Market Value Reduction from £15,000 down to the true and fair market value of £12,500.
By taking adavnatge of the 10th anniversary guarantee, your £12,500 immediately jumps back to £15,000, effectively rewarding you for cashing-in.
However, those clever people at Aviva will write to you telling you you don't need to do anything about the 10th anniversary guarantee because they will carry it forward until whenever you choose to cash in. In other words, if at the date you cash-in there's a Market Value Reduction (MVR) they will waive up to £2,500. That's good of them isn't it? Or is it?
The future growth of your investment will always be based on your market value, in this example £12,500. So if the fund grows by 30% over the next five years the market value of your £12,500 will have increased to £16,250 and that's what you'll get back if you cashed-in on that date. But if you took the full £15,000 on the 10th anniversary taking advantage of the guarantee and this grew by 30% over the next 5 years it would be worth £19,500. You'd be £3,250 better off.
Things ordinarily to consider here include factoring in your health, tax position (there's a chargeable event for income tax purposes) and advice on a suitable alternative investment that mean that you should contact an independent Financial Adviser.
But right now you also have to keep in mind that;
a) you need to remain a policyholder until Aviva have paid the reattribution offer in order to remain eligible, likely to be at the end of the year, and
b) they are due to pay a final special bonus in Januray 2010 of 3.6% so you might well decide to hold on for that before cashing-in.
I explain the importance of the 10th anniversary guarantee in more detail on my website withprofitshealthcheck.com. Lots of insurance companies offer this 10th anniversary guarantee and they all deal with it differently. Anyone with a 10th anniversary guarantee on a With Profits Bond coming up (or recently passed) should consult an Independent Financial Adviser.