Norwich Union savers who bought policies in the seventies and eighties have been insulated from the problem. Their policies typically guaranteed an annual retirement income well into double figures. As Norwich Union guaranteed these rates, it must now pay them regardless of how low they have sunk.
In a sense, such savers are doubly fortunate. Their pension funds are already swollen by the lengthy bull-run on the stock market since the early 1970s. So even if annuity rates have fallen, the impact on retirement incomes is offset by the greater capital value of their pension savings. In other words, those with guarantees are getting the upside of the bull- run without the downside of falling yields. Unfortunately, other policyholders - those without the guarantees - are paying for that double benefit. The pounds 750m provision to pay for the guarantees is coming out of Norwich Union's long-term fund, 90 per cent owned by policyholders.