More than half a million retail investors hold shares in Aviva, one of Britain’s best-known insurers.
Earlier this year, the FTSE stalwart announced that it planned to pay out an extra £3.75 billion to shareholders — cash that it had built up from the sale of some of its overseas businesses.
Aviva is proposing to pay this money through giving new ‘B shares’ (worth £1.01 each) to existing investors then buying these back again.
But the scheme has caused confusion, with some unsure how to vote on the proposal at Aviva’s upcoming AGM on May 9. If you’re a shareholder trying to make sense of Aviva’s plan, here’s our guide to what it might mean for you…
Windfalls: Earlier this year, the FTSE stalwart announced it planned to pay out an extra £3.75bn to shareholders — cash it had built up from the sale of some of its overseas businesses
Why has Aviva got so much cash?
Like most big businesses, the way Aviva operates is constantly evolving as it seeks to stay profitable in a changing market.
In recent years, its focus has been on streamlining its activities, selling off some parts of the business (particularly those outside the UK and Ireland) to focus on what it thinks it does best.
‘Put simply, Aviva is a much simpler beast than it once was,’ says Sophie Lund-Yates of Hargreaves Lansdown.
The company’s new CEO, Amanda Blanc, says she wants to concentrate on growing Aviva’s presence in the retirement and pensions market.
And having sold off most of its overseas businesses not relevant to that aim, Aviva has built up cash proceeds of some £7.5 billion.
It has decided to use the funds to pay down debt and return some capital to shareholders.
What does it plan to do?
The main part of Aviva’s plan (which needs approval from shareholders) revolves around creating something called ‘B shares’.
‘Every ordinary shareholder will receive one temporary share known as a B share for each share they currently hold,’ says an Aviva spokesperson. ‘We will then pay a fixed amount to redeem each B share.’
The company plans to give these B shares a value of 101p. It will then immediately buy back those B shares in May, resulting in a capital gain for shareholders.
If you currently hold 2,000 Aviva shares, you will therefore receive approximately £2,020.
There’s then a second part of the plan in which Aviva will ‘consolidate’ its ordinary shares (currently worth 438p each).
Under this plan, existing shareholders will receive 76 shares for every 100 they previously owned. Crucially, though, that doesn’t mean investors end up with less than they had before.
Once £3.75 billion has been returned to shareholders, Aviva will be a smaller firm on paper.
The share consolidation will therefore reduce the total number of shares available so investors maintain an overall stake of the same value.
Why is it paying money this way?
After a strong year, Aviva has already boosted its dividend — the share of its profits passed on to investors.
Vote: If at least 75 per cent of shareholders back Aviva’s plan, it will go ahead
However, it now wants to allocate this one-off capital from its business sales by issuing B shares.
There are significant advantages for retail shareholders in paying out capital this way.
Investors are currently entitled to an annual dividend allowance of £2,000, with anything above that taxed at a minimum of 8.75 per cent.
When it comes to capital gains, though, investors can register £12,300 per year before having to pay tax.
In theory, the B share scheme should mean that investors can protect more of their payout from the tax man.
Is it the first to do this?
Not at all. The issuing (and buying back) of B shares is an established way of returning capital to shareholders.
That said, it tends to be used in special circumstances where a company has suddenly come into a large sum of capital — typically following a big sale.
Standard Life did the same thing in 2018, when it returned £1 billion to shareholders after selling its UK and European insurance business.
Sainsbury’s also issued B shares when it sold its share in a U.S. supermarket chain in 2004.
What will happen next?
The proposal will be put to a vote of Aviva’s shareholders at the firm’s AGM. If at least 75 per cent of shareholders back the plan, it will go ahead.
Shareholders should have been sent their voting forms and shareholder reference number by post or email.
You can vote by post or by attending the meeting online (web.lumiagm.com/171-925-637).
Should you vote for the proposal?
There is no ‘catch’ in the plan for retail investors. If it goes ahead, they will receive the money.
Aviva’s future share price, meanwhile, will depend on its performance afterwards. Whether the plan will satisfy large investors remains to be seen.
The Anglo-Swedish activist investor Cevian Capital currently has a 5.3 per cent stake in Aviva and has criticised its management for not paying out more money to shareholders. Cevian has not said whether it will back the plan.
Have investors lost out before?
Investors may well remember the debacle in 2018 when Aviva announced plans to repurchase its ‘preference shares’.
These gold-plated shares had been sold to retail investors with the promise of a higher dividend, and were trading at a premium on the market.
But suddenly the company said it wanted to buy them back at less than their valuation.
After an outcry from investors, Aviva was forced to change tack, with the fiasco contributing to the departure of its then chief executive.
Compare the best DIY investing platforms and stocks & shares Isa
Investing online is simple, cheap and can be done from your computer, tablet or phone at a time and place that suits you.
When it comes to choosing a DIY investing platform, stocks & shares Isa or a general investing account, the range of options might seem overwhelming.
Every provider has a slightly different offering, charging more or less for trading or holding shares and giving access to a different range of stocks, funds and investment trusts.
When weighing up the right one for you, it’s important to to look at the service that it offers, along with administration charges and dealing fees, plus any other extra costs.
To help you compare investment accounts, we’ve crunched the facts and pulled together a comprehensive guide to choosing the best and cheapest investing account for you.
We highlight the main players in the table below but would advise doing your own research and considering the points in our full guide linked here.
>> This is Money’s full guide to the best investing platforms and Isas
| Admin charge | Charges notes | Fund dealing | Standard share, trust, ETF dealing | Regular investing | Dividend reinvestment | ||
|---|---|---|---|---|---|---|---|
| AJ Bell YouInvest | 0.25% | Max £3.50 per month for shares, trusts, ETFs. | £1.50 | £9.95 | £1.50 | 1% (Min £1.50, max £9.95) | More details |
| Bestinvest | 0.40% | Account fee cut to 0.2% for ready made investments | Free | £4.95 | n/a | n/a | More details |
| Charles Stanley Direct | 0.35% | No platform fee on shares if a trade in that month and annual max of £240 | Free | £11.50 | n/a | n/a | More details |
| Fidelity | 0.35% on funds | £45 fee up to £7,500. Max £45 per year for shares, trusts, ETFs | Free | £10 | Free funds £1.50 shares, trusts ETFs | £1.50 | More details |
| Hargreaves Lansdown | 0.45% | Capped at £45 for shares, trusts, ETFs | Free | £11.95 | £1.50 | 1% (£1 min, £10 max) | More details |
| Interactive Investor | £119.88 as £9.99 per month | £7.99 per month back in trading credit | £7.99 | £7.99 | Free | £0.99 | More details |
| iWeb | £100 one-off | £5 | £5 | n/a | 2%, max £5 | More details | |
| Freetrade | Free for standard account £3 month for Isa | Freetrade Plus with more investments is £9.99/month inc. Isa fee | No funds | Free | n/a | n/a | More details |
| Vanguard | 0.15% | Only Vanguard funds |
Free | Free only Vanguard ETFs | Free | n/a | More details |
| (Source: ThisisMoney.co.uk March 2022. Admin charges quoted annually, may be monthly or quarterly) |
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