Aviva, one of the UK’s largest insurers, has cut some of the bonuses paid on its investment funds, which means that many customers’ endowments will not generate sufficient returns to pay off the capital they owe on their mortgages.
The payouts for investors with endowment policies with the old General Accident and Norwich Union – both part of Aviva – due to mature this year are significantly lower than last year’s.
A 25-year policy invested in the CGNU (General Accident) fund now produces £31,950, down 5.9% on last year’s £33,937.
Policies linked to the Norwich Union fund will pay out £23,465, down 7.4% on the £25,353 last year.
The figures are based on a 25-year endowment taken out by a 29-year-old man paying in £50 a month.
Endowment mortgages were very popular until the 1990s, when it became apparent underperfoming Stock Market meant the policies increasingly failed to pay off the mortgage capital borrowed.
When policyholders signed up for these savings plans, savers were told they could get £85,000. At their peak, when stock market performance had been strong for a long period, in the early Nineties, pay-outs topped £100,000.
Aviva has 71,000 endowment policies maturing this year, and estimates some 70,290 will fail to pay out enough to cover the policyholders’ mortgage.