With-Profits - useful information

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It is important that you understand how your With-Profits investment works. This includes the smoothing process and the setting of both annual and final bonus rates, all of which affect the value of your investment.

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 distinct types of With Profits investment:

  • Traditional With-Profits (TWP) - A With-Profits investment that offers a level of guaranteed benefit in return for the payment of a premium or an agreed series of premiums. 
  • Unitised With-Profits (UWP) - A With-Profits investment (other than New Generation With-Profits) that offers a level of guaranteed benefit linked to the payment of each individual premium and expressed in terms of a unit value. 
  • New Generation With-Profits (NGWP) – With-Profits funds under which there is no concept of annual or final bonuses, with benefits being determined by reference to a smoothed unit price that normally changes on a daily basis.

You should be aware that all investments carry some degree of risk and it's important that you fully understand the risks involved.

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: 

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 an important part of the payout of a With-Profits investment. It is a discretionary amount, expressed as a percentage rate, that is added to a With-Profits investment on an annual basis. The rate at which bonuses are added are discretionary because they depend on a number of factors, such as:

  • the amount of historic annual bonuses accrued to date;
  • the performance of underlying investments;
  • guarantees associated with the type of With-Profits investment; and
  • assumptions about future economic conditions

We send notification of the annual bonus announcement to customers at the end of June each year. You can find out more on from the following sections:

Please remember that we don’t apply annual bonuses to our New Generation With-Profits funds. 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 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 arises. 

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 apply based on the term of the investment at the point of claim, whereas, UWP rates apply based on the month of investment. Please remember that final bonuses do not apply to our New Generation With-Profits funds.

The table below provides a summary of all With-Profit investment types, when they were available and a brief description of the associated guarantees. For precise 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
Name of unitised With-Profits fund When available Guaranteed rate of return

With-Profits Endowment pension fund (WPE)

First made available under unitised pensions contracts during 1984. The fund was closed to all future contributions on 31 October 1999.

Guaranteed minimum return of around 5.5% p.a. for units held to your pension date.

High Equity With-Profits pension fund (WP2)

Available under new unitised pensions contracts from 1 February 1996 to 30 September 2002. We ceased to accept single premium investments (including investment switches) into this fund from 30 April 2015. We continue to accept renewal contributions and regular premium increments.

At certain points as set out in your policy conditions, a guarantee that the price you receive when you sell units will not be less than the selling price when you bought the units plus any yearly bonus additions.

Deposit Administration Fund (DAF)

Available under new unitised pensions contracts from 3 June 1996 to 30 September 2002. We ceased to accept single premium investments (including investment switches) into this fund from 30 April 2015. We continue to accept renewal contributions and regular premium increments.

At certain points as set out in your policy conditions, a guarantee that the price you receive when you sell units will not be less than the selling price when you bought the units plus any yearly bonus additions.

Deposit Administration Fund 2 (DA2)

Available under new unitised pensions contracts from 1 September 1999. The fund was closed to all future contributions on 30 September 2002.

Guaranteed minimum return of around 3.0% p.a. for units held to your pension date.

Reflex Deposit Administration fund (WP)

We have a number of 'deposit administration' contracts (mostly within our Reflex contract but see also below). Reflex contracts closed to new business in 1984, but still accepts renewal contributions and increments.

Guaranteed minimum return of around 5.0% p.a. for units held to your pension date.

Pension Deposit Administration contracts

These type of contracts were open to new business in the 1970s and 1980s.

A guarantee that the amount received will not be less than the amount invested into the contract plus any annual deposit bonus additions. The individual and group pension plans sold on this basis included SEF, BRAP, Money Purchase and Money Plus.

With-Profits Option 1 pension fund (WP1)

Available under new unitised pensions contracts from 1 January 1996 to 31 October 1999. The fund was closed to all future contributions on 31 October 1999.

Guaranteed minimum return of around 4.0% p.a. for units held to your pension date.

Traditional With-Profits

Available under our life contracts for 70 years and since the 1970s under our pensions contracts. We continue to accept regular contributions and regular premium increments.

Significant investment guarantees when held to the contractual maturity date. Typically between 2% - 5.5% per year.

With-Profits Bonds (WPB, WP8, WP9 and WP0)

Available under new with-profits bond contracts from 1 November 1996 to 30 September 2002. We ceased to accept single premium investments (including investment switches) into this fund from 30 April 2015.

At certain points as set out in your policy conditions, a guarantee that the price you receive when you sell units will not be less than the selling price when you bought the units plus any yearly bonus additions.

With-Profits Endowment Life fund (WPC)

Available under our unitised Mortgage Link contract. We continue to accept renewal contributions and regular premium increments.

Guaranteed minimum return of around 3.9% p.a. for units held to your contractual maturity date.

With-Profits Whole of Life fund (WWP)

Available under our unitised Passport for Life contract. We continue to accept renewal contributions and regular premium increments.

Guaranteed minimum return of around 2.7% p.a. for units held to your 85th birthday.

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). The sections below help to distinguish which annual bonus rates apply to your With-Profits investment. For more information see how we apply the annual bonus rate.

With-Profits investments where the annual bonus rate is declared in arrears

The contracts in this category are:

  • any Traditional With-Profits life or pensions contract (TWP)
  • any Unitised With-Profits pensions contract that allows investment in the WPE or WP1 funds*
  • any Unitised With-Profits life contract that allows investment in the WWP (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.

With-Profits investments where the annual bonus rate is declared in advance

The contracts in this category are:

  • any With-Profits pensions contract that lets you invest in a unitised fund and is invested in the WP2, DAF or DA2 funds
  • any With-Profits business under a Performance Bond contract taken out between 1 November 1996 and 30 September 2002
  • SEF, 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 June, 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

  Declared 31 December 2014 Interim from 1 April 2015
Life 2.50% 2.50%
Pensions 0.25% 0.25%

Unitised With-Profits

  Declared 31 December 2014 Interim from 1 April 2015
Life WPC fund Nil Nil
Pensions WPE fund Nil Nil
Pensions WP1 fund Nil Nil
Pensions Reflex Deposit Administration fund Nil Nil

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 (PDF - 259kb)(Opens new window) 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 call our customer helpdesk on 03456 10 00 39. 

When we talk about a guarantee or guarantees, we mean the promise we make that the product or feature will deliver you a certain benefit.

Any guarantees are based on the ability of the issuing insurance company Scottish Equitable plc to pay them. If, for example, that company no longer existed, then the guarantees it provides may be affected.

The cost of meeting the guarantees may affect the value of the annual bonus. It’s much like paying for the things you insure on a day-to-day basis just now. The cost of guarantees will depend on where you choose to invest your money.

The guarantees will no longer apply if you cash in your With-Profits investment early, including if you transfer, make an investment switch or surrender your plan. We don't offer a guaranteed cash-in value so you could get back less than the amount you originally invested. 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.

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.

  From 1 April
2014
From 1 April
2015
Life With-Profits Bonds fund Nil Nil
Pensions WP2 fund 1.50% 1.75%
Pensions DAF fund 2.00% 1.50%
Pensions DA2 fund Nil Nil
Other Deposit Administration contracts (SEF, BRAP, Money Purchase and Money Plus) Nil 12.70%

If you’d like any more information about our bonus rates, please contact your financial adviser, or call our customer helpdesk on 03456 10 00 39.

You can find details of this in our Principles and Practices of Financial Management (PDF - 259kb)(Opens new window)(Opens new window)(Opens new window)(Opens new window) and Consumer-friendly Principles and Practices of Financial Management (PDF - 1015kb)(Opens new window)(Opens new window)(Opens new window)(Opens new window). If you’d like any more information about our bonus rates, please contact your financial adviser, or call our customer helpdesk on 03456 10 00 39. 

When we talk about a guarantee or guarantees, we mean the promise we make that the product or feature will deliver you a certain benefit.

Any guarantees are based on the ability of the issuing insurance company Scottish Equitable plc to pay them. If, for example, that company no longer existed, then the guarantees it provides may be affected.

The cost of meeting the guarantees may affect the value of the annual bonus. It’s much like paying for the things you insure on a day-to-day basis just now. The cost of guarantees will depend on where you choose to invest your money.

The guarantees will no longer apply if you cash in your With-Profits investment early, including if you transfer, make an investment switch or surrender your plan. We don't offer a guaranteed cash-in value so you could get back less than the amount you originally invested. 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.

How do you calculate With-Profits bonuses?

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.

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 approach to setting annual bonus rates aims to make sure that we can meet your guaranteed benefits. However, if this prudence 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.