Scottish Life With Profits Funds
How does a With Profits plan work?
With Profits is a type of pooled arrangement that invests in companies, both in the UK and overseas, government stocks, property, and other types of assets. Instead of receiving direct investment returns, for example dividends, rents, interest and capital appreciation, With Profits planholders receive bonuses.
Two types of bonuses may be paid: a regular bonus and a final bonus. The type of contract held will determine how bonuses are paid. For example, for our Crest contracts the regular bonus is included in the unit price which is calculated daily. The rate of regular bonus included in the unit price is decided from time to time by the Directors after receiving actuarial advice and making an allowance for expenses. This means that in periods where direct investment returns fall in value, we are still able to allocate a bonus to planholders. This also works the opposite way, with planholders being unlikely to receive the same percentage of investment returns over a good period.
For the unitised With Profit funds available to our Talisman, Retirement Solutions and individual range of contracts, the unit price stays constant and bonus units are declared at least yearly. In addition a final bonus may be payable on retirement, death, transfer or a switch to other funds for all of the fund ranges.
When exiting the With Profits fund a Market Value Reduction (MVR) may be applied to reduce the value of units in adverse market conditions. The reduction is applied to ensure a fair level of payouts to everyone invested in the fund. If this did not occur, the investors remaining in the fund would not receive their fair asset share. The MVR does not apply to units on death or at the chosen retirement date. It is important to remember that your client may not get back the amount originally invested.
The With Profits funds are invested in a mixed portfolio which includes Government and other fixed interest stocks, equities (both UK and overseas) and property. The asset mix is chosen with an eye to maximising the long-term return on investments while paying due attention to meeting the Company's obligation to fulfil its guaranteed liabilities.
Payments made into a plan which invests in the With Profits funds are either invested in the Scottish Life fund or the Royal London Ordinary Long Term fund.
All payments or transfers made before 30 September 2000 would have been invested in the Scottish Life fund (known as With Profits 1). During our transition from Scottish Life to Royal London, any money invested between 30 September 2000 and 30 June 2001 would have continued to be invested in the Scottish Life fund, but increases in regular premiums and additional single premiums would have been invested in a separate sub-fund (known as With Profits 2). Following the merger, any new policies, increases in regular premiums or transfers made after 30 June 2001 are invested in the Royal London Ordinary Long Term fund (known as With Profits 3).
Principles and Practices of Financial Management
All companies who offer with profits investments are required to publish a document detailing the way in which they manage the with profits fund. You can find copies of our Principles and Practices of Financial Management (PPFM) by visiting Royal London PPFM.
If you have any questions about our PPFMs, please e-mail: PPFM queries
Published 19 July 2012