Norwich Union faces pounds 500m bill for guaranteed annuities
Saturday 16 January 1999
The bill stems from clauses in old pension contracts which typically promised savers an annual income in retirement worth 20 per cent of the amount they saved, compared with around 9 per cent if no guarantee had been offered.
Like other offices, Norwich Union believed it could afford the guarantees because long-term interest rates had historically been high. But rates have plunged over the past year, forcing offices to finance the guarantees from reserves.
Norwich Union's bill could rise even higher to approach pounds 1bn, if long- term interest rates stay at today's levels. The key interest rate, the yield on 15-year gilts, yesterday touched a record low of 4.19 per cent, down from 6.25 per cent a year ago.
The Government Actuary and the Financial Services Authority wrote to life offices this week with instructions on how to deal with annuity guarantees.
But regulators are refusing to disclose the cost of the problem to each particular company. Estimates from the Government Actuary put the total cost at pounds 7bn. Analysts are warning that the guaranteed annuities could push some life offices into dropping the amount they pay out in bonuses to policyholders.
As long-term interest rates fell to a record low of 4.19 per cent yesterday, Norwich Union declared a 12 per cent cut in the annual bonus it pays each year to pension policies.
Holders of with-profits policies this year will receive a 6 per cent annual bonus, compared with 6.75 per cent at the same time last year. Savers will receive 5.5 per cent, compared with 6 per cent last year.
- 1 Caitlyn Jenner car crash: Driver who died in collision sued by surviving passengers for $18.5m
- 3 Watch the Supermoon live: How to see the brightest Moon of the year tonight
- 5 The 20 toughest job interview questions in the world
Caitlyn Jenner car crash: Driver who died in collision sued by surviving passengers for $18.5m
Pictures show young Palestinian girl biting Israeli soldier trying to detain boy during West Bank protests
Celebrity Big Brother 2015: Tila Tequila kicked off show after 'describing Hitler as a good man'
Watch the Supermoon live: How to see the brightest Moon of the year tonight
Hulk Hogan wants to be Donald Trump's running mate in the US Presidential election
Climate change: 2015 will be the hottest year on record 'by a mile', experts say
'Women only' train carriages: Jeremy Corbyn unveils radical move to tackle public harassment
Black holes are a passage to another universe, says Stephen Hawking
Iain Duncan Smith 'should resign over disability benefit death figures', says Jeremy Corbyn
Stock up on canned food for stock market crash, warns former Gordon Brown adviser
Labour leadership: Jeremy Corbyn voters most likely to believe 'world is controlled by a secretive elite'
iJobs Money & Business
£25000 - £30000 per annum: Recruitment Genius: From modest beginnings the comp...
£35000 - £40000 per annum: Recruitment Genius: From modest beginnings the comp...
£15000 - £65000 per annum: Recruitment Genius: This is an exciting opportunity...
£18000 - £20000 per annum: Recruitment Genius: This is a fantastic opportunity...