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Consumer  >  Investment for Consumers  >  With Profits  >  Frequently Asked Questions - Scottish Life Fund Bonus Report

Frequently Asked Questions - Scottish Life Fund Bonus Report

• Why have I received this statement?
• What is a traditional with profits policy?
• My policy has matured/surrendered, am I entitled to more money?
• Why has my bonus rate been relatively low in recent years?
• Is my plan on track to pay off my mortgage?

Why have I received this statement?

The bonus statement you have received is issued on an annual basis to our customers who hold with profits policies. It shows the amount of bonus added to your policy for 2007 and the increase in the guaranteed benefits available in the future.

Please note that this is neither a projected maturity value nor a current valuation should you wish to cash in or transfer your policy. For information relating to either the maturity value or surrender/transfer value or for any information relating to previous bonus amounts or statements, please call us on 0845 602 1884.

What is a traditional with profits policy?

In exchange for payments (premiums) by the policyholder, we guarantee to pay a minimum amount (basic amount) on a particular date in the future as agreed when you started your policy.

We invest the premiums in a wide range of investments and with profits policyholders share in the profits and losses made on these investments. Instead of receiving direct investment returns such as dividends or interest, with profits policyholders receive bonuses on their policies.

There are two main types of bonus:

• Regular bonus (also called annual bonus or reversionary bonus) is usually added once a year to the guaranteed benefits and cannot be taken away provided you make no changes to the terms of your policy.
  
  
• Final bonus (also called terminal bonus) may be payable when you take your benefits, based on the rates at that time, but this is not guaranteed. If you cash in your policy, transfer your policy or stop paying premiums early we may pay you a reduced amount of the bonuses you would have received had you kept your policy until the end of the term. We may also apply other charges to pay out an amount that is fair to you and those remaining in the fund.

My policy has matured/surrendered, am I entitled to more money?

There is no further entitlement as claim payments include interim bonus which allows for regular bonus expected to be added from the date of the last annual bonus to the claim date.

Why has my bonus rate been relatively low in recent years?

Working capital plays a very important part in managing with profits business. It is the amount by which the assets of the fund are greater than the amounts already promised to policyholders. There is a regulatory requirement to hold a certain amount of working capital as a cushion against bad times.

The working capital gives us some additional freedom to invest the assets of the fund in company shares and property hopefully to provide higher growth over the longer term. The working capital is also used, amongst other things, to meet the cost of any guarantees.

After Scottish Life’s demutualisation in July 2001, the Scottish Life Closed Fund had significant working capital. As a result, the Fund was invested more heavily in equities than had been the case prior to demutualisation. This was consistent with the fund’s aim of maximising the long-term return on investments while meeting its guaranteed liabilities.

Unfortunately, the working capital has reduced considerably over the last few years due to the following factors:

• After the terrorism attacks on 11 September 2001, the equity markets suffered significant losses. As a direct result, the Board decided not to declare an Additional Reversionary Bonus that had been planned for the end of 2001.
  
  
• During 2002 equity markets continued to fall and by the start of 2003, the fund was forced to sell out of equities into bonds to protect its regulatory solvency position. By this stage the equity market had halved in value from its peak.
  
  
• Falling interest rates and the emerging view that people would be living longer in retirement, increased the cost of policyholder guarantees significantly.

As bonus additions increase the amounts promised to policyholders, the reversionary bonus is being kept low in order to manage the amount of working capital.

Is my plan on track to pay off my mortgage?

We send separate regular updates to mortgage endowment policyholders saying whether or not, under certain assumptions, the endowment is likely to re-pay the mortgage. Your bonus statement shows the guaranteed benefits payable in the future.

If you make no changes to your policy and it is held until maturity we guarantee to pay the basic amount and total bonuses declared to date. Any bonuses declared in the future plus any interim and final bonus, at the rates in force at that time, will then be added to this amount.

Contact us

If you would like further information about your policy or your bonus amount please contact us on 0845 602 1884 between 9am and 5pm Monday to Friday. We are committed to delivering excellent customer service and so we may record and monitor telephone calls for training and quality control purposes.