Bonus declaration overview.

2011 Bonus Declaration

On Thursday 16 February 2012, we announced bonus rates for all our with profits plans for 2011, after delivering a return of 1.7% on Legal & General's With Profits Fund. This return is before we have taken off investment expenses, tax and any policy charges.

Over the past 10 years, assets invested for customers in Legal & General’s With Profits Fund have delivered a return of 5.7% p.a. before tax. This is well ahead of the Retail Prices Index, which has risen 3.2% p.a. over the same period. The 10 year With Profits Fund return also outperforms the average balanced managed fund return over 10 years of 4.1% p.a. before tax (Source: Lipper for Investment Management and Legal & General).

Tim Sheldon, With Profits Actuary said: “In current market conditions the core features of with profits, which combine a balanced asset mix with smoothing of investment returns and underlying guarantees, mean with profits remains a good choice for investors seeking steady growth from a spread of investments over the longer term with some downside protection. In these uncertain times the benefits of smoothing and guarantees can provide advantages to with profits policyholders over other forms of investment. Active risk management and our balanced investment strategy ensure our With Profits Fund retains the strength and investment freedom to take advantage of potential opportunities to boost returns for policyholders.”

Customers will receive their 2011 annual bonus statements between February and July 2012, showing the impact of the bonus declaration on their plan.

Investment markets - a review of the last year

Global economic recovery faced significant challenges during 2011. Consumer sentiment, particularly in the major economies, was weak due to high levels of unemployment, rising food and energy costs, and credit constraints, which curtailed retail spending. Countries such as China, India and Brazil continued to grow far more rapidly than major developed economies.

The Euro debt crisis continued to dominate financial markets. Three countries in the European Union are receiving a bail out; Portugal, Greece and Ireland.

2011 was also a turbulent year for investments. The biggest moves were concentrated in early August, when major equity markets fell between 10% and 20% in the space of a few days. One of the main catalysts was an announcement that US interest rates would remain at their current exceptionally low level for at least another two years. At about the same time, Standard & Poors downgraded US government debt for the first time in its history.

Most major central banks kept interest rates on hold throughout 2011, trying to stimulate investment in the economy. Equity markets lost ground through 2011, the FTSE 100 index returning –5.5% (excluding dividends).

How has the With Profits Fund performed?

The Fund’s performance is a combination of the returns received from all the investments in the Fund. The graph below shows the overall investment return of the With Profits Fund for each of the last seven years. These investment returns are before we’ve deducted investment expenses, tax and any policy charges.

Please note that the returns used to calculate bonuses for your plan over the years will not be the same as those shown below. This is because the investment approach may vary for each customer invested in the With Profits Fund, depending on the type of policy they have. This may be for a number of reasons, one of which is to reflect the varying features and benefits of different with profits products.

Please note that all investment returns are rounded to the nearest percent.
Past performance is not a guide to how the fund will perform in the future.

Where is the With Profits Fund invested?

With Profits is invested predominantly in the following asset classes:

• UK and overseas shares – With Profits invests in shares because they are widely believed to provide the best long-term return. Over the short term, the value of a fund investing in shares can go up and down a lot. Share prices can change dramatically in response to the activities and financial performance of individual companies, as well as being influenced by general market and economic conditions.
• Fixed interest securities – With Profits invests in fixed interest securities that aim to provide a stable income over a fixed length of time. These are essentially a loan, usually to a company, or sometimes to a government. The return on a fund investing in fixed interest securities comes from the interest that the company or government pays on the loan, and the value of the securities. Fixed interest securities are less risky than shares but are likely to provide a lower return over the long term.
• Commercial property – Property fits well in a balanced investment mix as its returns aren’t directly linked to the returns from shares. Investment includes holdings in offices, retail space and industrial property, which can offer good prospects for long-term returns. Commercial property can provide growth through rises in the value of the property and through the steady income stream that can be received from rents.

This strategy of spreading customers’ investments across a mix of assets is called ‘diversification’ and can help to reduce the impact of any one asset type experiencing poor performance.

The pie chart below shows the mix of assets for the With Profits Fund as at 31 December 2011.

Where can I find out more about how my investment has performed?

To see the investment returns and asset mixes for specific with profits products, click on the links below:
Pensions and annuities bonus declaration
Endowments and savings plans bonus declaration
Bonds bonus declaration

To find out more about this year’s bonus declaration please download our with profits 2011 bonus factsheet.