Scottish Widows cuts windfalls by £300 for 1m policyholders
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Your support makes all the difference.Windfalls fall almost a million Scottish Widows policyholders will be cut by an average of £300 because of a shortfall in assets needed to back existing policies.
Windfalls fall almost a million Scottish Widows policyholders will be cut by an average of £300 because of a shortfall in assets needed to back existing policies.
The insurer is having to use £300m of its surplus assets after an examination of the books prompted by the Lloyds TSB takeover.
Iain Reid, Scottish Widows' company secretary, said the shortfalls were discovered across a range of with-profits policies. "As part of the deal we have to demonstrate to the courts, to the independent actuary and to our members that the existing policyholders are adequately protected for the future," he said.
The revisions make Scottish Widows £300m cheaper for Lloyds TSB, and reduces the value of its bid to an estimated £6.7bn. That includes £1.3bn put into a contingency fund until the takeover is complete. Contingencies could include the additional costs of guaranteed payments on policies like the high-annuity benefits promised when some Seventies and Eighties investments were taken out.
Compensation for the sale of the surplus assets, now estimated at £5.4bn, will be divided between Scottish Widows policyholders. Around 1.6 million will receive a flat rate of £500, which will not be altered by yesterday's revision. The rest will be shared by 900,000 policyholders who have with-profits policies will share the remainder.
The company says members are being rewarded for the length of time they have held the policy and the size of the policy.
The average windfall for these will now be £6,000, but there will be wide variations.The company says windfalls will be calculated on a formula that benefits the longest-standing policyholders with most invested. Someone who has paid £25 a month to an endowment policy since 1979 can expect around £6,350, while someone paying £25 a month to a pension policy over the same period will receive around £8,480.
Members vote on the plans on 22 December and payments could be made next June. The takeover will create Britain's second biggest provider in the life, pensions and unit trusts market.
The company has also found a way to reduce the tax payable on the windfalls. Payments will be made in shares in a Lloyds TSB subsidiary, redeemable in within days for cash or for loan notes which will be redeemable for up to seven years and allow policyholders to benefit from up to seven years of capital gains tax allowances.
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