Frequently asked questions about the With Profits Fund.

With profits is a medium to long-term investment option that should be held for five years, ideally longer. When you invest in with profits, we combine your money with that from other investors into the With Profits Fund. This allows you to enjoy the benefits of a potentially wider range of investments than if you invested on your own. The With Profits Fund is primarily invested in a mix of UK and overseas shares, fixed interest securities and commercial property (typically referred to as assets). You can find more information on investments in with profits in our Understanding Asset Classes factsheet.

With profits aims to offer a better return than a typical savings or deposit account over the medium to long term. We believe with profits is less risky than investing directly in the stock market due to a mix of investments and the principle of smoothing.

However, due to the nature of investments held in the fund, it is more risky than a deposit account and you may get back less than you invested.

The value of a with profits investment normally grows when we add bonuses. For most policies there are three types of bonus. The amount of bonus we add to your plan will depend on the investment performance of the assets your plan is invested in.

Whilst investment returns are the most important factor in deciding how much bonus we add, bonus rates also depend on things such as:

• When you started your with profits investment;
• When you paid in your contributions;
• The historic performance of the assets your plan is invested in;
• Past bonus rates and our view of future market conditions.

When setting bonus rates, we also aim to ‘smooth’ returns. For more information on smoothing, please see the ‘What is smoothing’ question below. Bonus rates are not fixed; they will vary each year as actual returns and our view of the future change.

ANNUAL BONUS

An annual bonus may be added to a with profits plan at the end of each year. Each annual bonus added increases the basic guaranteed amount we’ll pay out at certain contractual points, that will vary depending on the type of plan you have. Once we’ve added an annual bonus, we cannot withdraw it for payments made to you at your contractual points. A contractual point is a set date or specific event, which is defined in your plan documents, for example the maturity date or normal/ selected retirement date or, if earlier, the date of death.

INTERIM BONUS

An interim bonus may be added to cover any period of time for which an annual bonus has not yet been declared. We will normally use the interim bonus rate to calculate the value of your plan in between annual bonus declarations. The interim bonus is set at the level we anticipate the annual bonus to be set for that calendar year but it may change without notice.

FINAL BONUS

A final bonus is a final addition to a plan and only applies when a claim is paid (or on a switch to another fund). It’s paid to make up any difference between the amount we have guaranteed to pay and the overall amount we decide is fair to pay planholders. Final bonus rates can be increased, reduced and withdrawn without notice. Not all products are eligible for a final bonus.

These are the names given to the annual amount of growth we have guaranteed to provide on certain contracts. These guarantees could be of significant value. CAI and CMA increase the value of plans each year by the addition of units, as described in the policy/plan documents.

The amount of CAI and CMA is taken into account when calculating bonuses. This means policyholders who receive CAI/CMA may receive a lower annual bonus (or no annual bonus at all) than those who do not have CAI/CMA. This is so that their overall return does not exceed the amount we consider appropriate in order to treat all of our with profits policyholders fairly.

If CAI and or CMA apply to your policy/plan, it will be shown on your bonus statement. 

We have several guides that provide more information on with profits. These are available on our With Profits guides page.

You can also find out more about with profits bonds on the frequently asked questions about with profits bonds page.

Alternatively, please contact us if you need to speak to someone.