Useful information

With-Profits is a pooled investment arrangement whereby certain profits and losses of the pool are shared fairly amongst the participating investors. Typically these investments offer a minimum guaranteed return plus some stability in payouts through smoothing out the effects caused by short-term movements in investment markets.

We have offered three types.

• Traditional With-Profits (TWP) - offers a level of guaranteed benefit in return for the payment of a contribution or a series of contributions. 
• Unitised With-Profits (UWP) - offers a level of guaranteed benefit linked to the payment of each individual contribution, expressed in terms of a unit value. 
• New Generation With-Profits (NGWP) – here there is no annual or final bonuses, with benefits being determined by a smoothed unit price that normally changes on a daily basis.

Please note, all of the with-profits products listed above are now closed to new investment.

Whilst With-Profits investments may include guarantees of minimum payouts at certain defined points in time, we don't otherwise guarantee the amount that you will receive back. This is because the payout depends on: 

• the performance of the underlying investments;
• any future annual bonuses or final bonuses (see 'What is the annual bonus declaration?' or 'What is the final bonus declaration?' sections below) or market value reductions (for our TWP and UWP funds). You can find out more about market value reductions in our Principles and Practices of Financial Management; and 
• smoothing reductions and increases which may apply at the point of payout (for our NGWP funds).

Please be aware that the value of an investment and any income from it can fall as well as rise and is not guaranteed. You may not get back the amount originally invested.

The annual bonus is a discretionary amount, expressed as a percentage rate, that is added to a With-Profits investment on an annual basis. The annual bonus rate is dependant on a number of factors, such as:

• the amount of historic annual bonuses accrued to date;
• the performance of underlying investments;
• any associated guarantees; and
• assumptions about future economic conditions.

We send notification of the annual bonus statement to customers in the third quarter of each year.

We don’t apply annual bonuses to our New Generation With-Profits funds. 

The final bonus (also known as terminal bonus) is a non-guaranteed amount that may be added to guaranteed benefits (including annual bonus additions) when a claim is made on the plan. 

Final bonus rates are usually declared at the end of each quarter and the rates applicable depend on the type of With-Profits investment. TWP rates are based on the term of the investment at the point of claim, whereas, UWP rates are based on the month of investment. Final bonuses do not apply to our New Generation With-Profits funds.

The table below provides a summary of all our With-Profit investment types, when they were available and a brief description of the associated guarantees. For detail on your policy, please see the policy conditions that would have been provided to you when your plan was taken out.

Table showing a summary of all With-Profit investment types

There are two ways in which the annual bonus declaration can be applied: in arrears or in advance, the method will depend upon your With-Profits investment fund choice(s). 

Annual bonus rates are declared in arrears for:

• any Traditional With-Profits (TWP) life or pensions contract 
• any Unitised With-Profits (UWP) pensions contract that allows investment in the With-Profits Endowment pension fund (WPE) or With-Profits Option 1 pension fund (WP1) funds*
• any UWP life contract that allows investment in the WWP (With-Profits Whole of Life fund, or Passport for Life) and WPC (Mortgage Link) funds

*If you took out a Reflex pensions contract between 1981 and 1984 and didn’t switch or redirect future contributions into the unitised Pensions WPE fund, the appropriate bonus rate is Unitised With-Profits – Pensions Reflex Deposit Administration fund.

Annual bonus rates are declared in advance for:

• any With-Profits pensions contract that lets you invest in a unitised fund and is invested in the High Equity With-Profits pension fund (WP2), Deposit Administration fund (DAF) or Deposit Administration fund 2 (DA2) funds
• any With-Profits business under a Performance Bond contract taken out between 1 November 1996 and 30 September 2002
• SE Funding (SEF), Barclays Retirement Annuity Plan (BRAP), Money Plus and the Money Purchase Plan

We announce our annual bonuses each April for the previous year and those bonuses that apply to claims in the balance of the current year. In quarter three, we write to our With-Profits customers with details of their annual bonus. You can check the most recent rates below.

The rates shown apply to both guaranteed benefits and accrued annual bonuses.

Traditional With-Profits

Unitised With-Profits

Note: While these unitised with-profits bonus rates are nil, there are significant associated guaranteed rates of growth under these funds:

• Life WPC fund – 3.9% a year
• Life WWP fund – 2.7% a year
• Pensions WPE fund – around 5.5% a year
• Pensions WP1 fund – 4% a year
• Pensions Reflex Deposit Administration fund – 5% a year

You can find details of this in our Principles and Practices of Financial Management and Consumer-friendly Principles and Practices of Financial Management. If you’d like any more information about our bonus rates, please contact your financial adviser, or us on 03456 100 010 (call charges will vary). 

We announce our annual bonus rates for the next 12 months in April each year. You can check the most recent rates below.

The rates shown apply to the accrued unit fund.

You can find details of this in our Principles and Practices of Financial Management and Consumer-friendly Principles and Practices of Financial Management. If you’d like any more information about our bonus rates, please contact your financial adviser, or us on 03456 100 010 (call charges will vary). 

When deciding our bonuses we use what’s known as the smoothed asset share. This is a calculation we do for each plan and is basically a calculation of the income less outgoings.

The income includes:

• the value of your contributions paid in;
• the earned investment return – this includes an allowance for smoothing (we currently do this by averaging the actual returns in the previous one to two years and the expected returns in the one to two years after); and 
• any enhancements paid in from the fund’s excess assets, known as the estate. An enhancement is a discretionary payment which can be made from the estate if the board decide there is sufficient surplus to do so.

The outgoings include:

•  any expenses or charges;
•  deductions for the cost of future investment guarantees; and 
•  allowances for taxation.

Over the long term, we expect (but can't guarantee) enhancements from the estate to exceed deductions for the cost of future investment guarantees.

When we calculate the annual bonus rate for each fund, we look ahead to the end of the investment term and how we expect the smoothed asset share to compare with the benefits we’ve committed to pay you. If we expect the guaranteed benefits to be high in comparison with the smoothed asset share, we’ll set the annual bonus rate low. If we expect the guaranteed benefits to be low in comparison with the smoothed asset share, we’ll set the annual bonus rate higher.

This aims to make sure that we can meet your guaranteed benefits. However, if this turns out to be unnecessary and the smoothed asset share ends up higher than your guaranteed benefits, you’ll get a final bonus to take account of this.

The way in which your annual bonus is calculated depends on which With-Profits funds you’re invested in.

Traditional  and Unitised With-Profits (WPE, WPC, WWP or WP1)

For Traditional or Unitised With-Profits investments that are invested in the WPE, WPC or WP1 funds, the benefits are split between the basic benefit and annual bonuses paid to date on the bonus notice. If we declare an annual bonus of x% for the year, the annual bonus we add is: x% of (basic benefit + previous annual bonuses).

Reflex Deposit Administration plan (WP)

If you’re invested in the With-Profits fund under our oldest Reflex contracts (typically taken out in 1981-1984), we show the change in the accumulated value of the fund over the year. This is the combination of a guaranteed growth rate of 5% a year and whatever annual bonus we declare. The increase in value of the fund over any year, where x% is the declared annual bonus rate is: (fund at start of year) x (5% + x%).

Unitised With-Profits (WP2, DAF or WPB)

For WP2, DAF and WPB funds, we declare an annual bonus rate in advance on 1 April. The unit price changes on a daily basis over the next 12 months by the daily equivalent of the annual bonus rate.

Unitised  With-Profits (DA2)

For the DA2 fund, we declare an annual bonus rate in advance on 1 April. The unit price changes on a daily basis over the next 12 months by the daily equivalent of the underlying guaranteed growth rate of 3% plus any annual bonus rate.

At the point of claim, we compare smoothed asset share with the current value of With-Profits benefits. We then adjust the payout by adding a final bonus or deducting a market value reduction (where permitted) to ensure that the value of the payout claim reflects the smoothed asset share. To find out more about market value reductions please see our Principles and Practices of Financial Management.