Making Your Choice

Policyholder guidance from the policyholder advocate Clare Spottiswoode CBE

In this section I set out my views about the offer as it applies to different groups of policyholders. In doing so I offer you some guidance to help you decide whether the offer is one you should accept or turn down. Under current FSA rules, for the great majority of policyholders the offer is much more than the amount they could expect to receive in the lifetime of their policies.

We have ensured that those who do not accept the offer are protected. If you decide to vote ‘No’ or not to vote at all, you can be confident that under a wide range of circumstances you will be broadly in the same position as you are now. Policyholders have a real choice.

With-profits policies are complicated and the way they perform depends on several factors, all of which can vary. I hope the guidance will be sufficient for you to make your choice about what you should do. If you need more information to help you, this guide includes a Question and Answer section and more detailed explanations of specific topics.

The choice you have to make

If you vote ‘Yes’ you will be, in effect, selling your rights to any future special distributions from the inherited estates1 to Aviva in return for a cash payment. The payment will be sent to policyholders from November 2009. You must complete the voting form that has been sent to you as part of this information pack. You will have a vote for each policy; if you have more than one eligible policy you must vote for each to record what you want to do. You can make different choices for each of your policies.

If you decide not to accept the offer you will keep your rights, during the lifetime of your policy, to any future special distributions. You will not receive a cash payment. If you do not vote it will be counted as a ‘No‘ vote. You may receive a reminder letter about the vote from Aviva.

What you need to bear in mind when reading pages 7 to 11

1. We have estimated how likely it is that there might be special distributions in future if there was no reattribution, that is, if things stay as they are now. This helps us to make a judgement about the amount that policyholders are being asked to give up. This can be compared with the reattribution offer.

2. Several factors are important in deciding whether there might be any future special distributions, and how much they might be, including:

- the performance of the financial markets - healthy markets mean that the estate is likely to grow, which makes it more likely that there will be money for special distributions in future

- if the markets do not perform well it is less likely that there will be money available for special distributions in future

- how long policyholders keep their policies. If more policyholders than Aviva is assuming decide to surrender their policies (a factor which we include in the ‘base case’ - see page 7), there will be fewer people to share possible special distributions in future

- on the other hand, if fewer policyholders than assumed surrender their policies, any special distributions will be less valuable to them as there are more people with whom it will be shared

- the number of new with-profits policies being sold by Aviva. The FSA permits the estate to be used to cover the capital reserve which is required for new business, making this money unavailable for special distributions. So the more the estate is used to subsidise new business in this way, the less you can expect to receive as special distributions. (See page 20 for more details about why the sale of new policies is important in a reattribution)

- if fewer subsidised new with-profits policies are sold than expected there would be more money available for special distributions

3. There are other things that might affect your decision. These include:

- whether you prefer the certainty of a cash offer now as compared to the possibility that you might get more later in special distributions that would be added to your policy as bonuses

- the number of years your policy has to run. The longer your policy runs the greater the chance of special distributions during its lifetime

- there may be tax advantages in taking the cash offer (which we expect you will receive tax free in the UK) rather than waiting for possible special distributions (which we would expect to be taxed in the same way as your normal policy benefits)

- you might also want to think about whether you are likely to keep your policy long enough to receive special distributions amounting to more than the cash offer, even if your current intention is that you will do so

How the offer compares for different groups of eligible policyholders

We have grouped policies by the length of time they have to run and by type, that is, whether they are regular premium policies or single premium policies such as bonds.

You need the following details to know your policy group

Do you make a regular payment, for example, each month and will you continue to make those payments? (Regular premium policy)

or

Did you make a single payment to buy your policy? (Single premium policy - if your policy was a regular premium policy and you have either stopped making payments or made it a paid up policy, we regard it as a single premium policy for this guidance)

How long does your policy have to run before it matures or before you intend to surrender it? (For a pension policy, how long is there before the retirement date in the contract or before the date you intend to begin drawing the pension payments or buying an annuity from Aviva or another provider)

The groups are:

1. regular premium policies that will pay out before the end of 2016 (either automatically on maturity or because you intend to surrender them)

2. single premium policies (including withprofits annuities)

3. regular premium policies that will pay out between the start of 2017 and the end of 2021 (either automatically on maturity or because you intend to surrender in that period)

4. regular premium policies that will pay out after 2021 (either automatically on maturity or because you intend to surrender them after then)

More generally, you should bear in mind when reading this guidance that, although my advisers and I have made an extensive range of estimates, to do so we have had to look many years into the future to try to assess what you may be giving up if you accept Aviva`s offer. The future is necessarily uncertain. For that reason, it is not possible for anyone to tell you with certainty whether or not the Aviva offer is worth more than the benefits you will be giving up if you accept the offer. The data we have used to make our estimates has been provided by Aviva, based on policies in force on the date for eligibility (21 November 2006). During the summer we will be checking our guidance to particular groups of policyholders against end 2008 data that Aviva will be providing. If this results in any significant change to our present guidance Aviva will enable the relevant policyholders to decide whether or not to change their vote.

If you are in any doubt about what you should do, please consider taking independent financial advice. There may be a cost involved in taking advice and you should make sure that you are aware of any charges.