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Scottish Life with profits bonus announcement
29 March 2010
Royal London, the UK’s largest mutual life and pensions company, has announced revised bonus rates for conventional with profits policies in the closed Scottish Life Fund1.
With effect from 1 January 2010
- The payout on maturity of a Scottish Life £50 per month 25-year with profits endowment is £30,4782. With total premiums on the policy of £15,000 this represents an annualised return of 5.2%.
- The payout on maturity of a Scottish Life £50 per month 25-year with profits mortgage endowment is £28,5712. With total premiums on the policy of £15,000 this represents an annualised return of 4.7%.
- The payout on vesting of a Scottish Life 20-year £200 per month with profits personal pension is £80,4853, an annualised return of 4.9%.
- The payout on vesting of a Scottish Life 20-year £10,000 single premium with profits personal pension is £38,0174, an annualised return of 6.9%.
Commenting on the bonus announcement, Stephen Shone, Group Finance Director at Royal London, said:
"Payouts for maturing policies in the Scottish Life Fund are generally close to asset share.
"The traditional comparison with the value of a policy which matured a year earlier is flawed since the 25-year policy terms cover different periods, as the diagram and text below illustrate.
x% was the investment return between 1 January 1984 and 1 January 1985
y% was the investment return between 1 January 2009 and 1 January 2010
"Looking at the figures for two 25-year savings endowments, one starting on 1 January 1984 and the other a year later, each with premiums of £50 a month and maturing on 1 January 2009 and 1 January 2010, we have maturity values of £32,452 and £30,478 respectively.
"However these are two different policies; the first starting in 1984 and maturing on 1 January 2009 and the second running from 1985 to 2010. So the pattern of investment returns and growth in policy values is clearly different between the two plans. The earlier policy will have participated in the investment returns achieved in 1984, but not those in 2009; and conversely for the later policy. So any such comparison is not 'like-with-like'."
Details of the above example and equivalent figures for other policy terms are given in table 2a (and table 3a for mortgage endowment policies). It should be noted that these are not 'like-with-like' comparisons because of the different years each comparison covers, as noted above.
“A more appropriate comparison is illustrated by the example of a 25-year savings endowment policy, with a premium of £50 a month, maturing on 1 January 2010. The surrender value of this policy a year earlier (ie on 1 January 2009) was £28,020. During 2009, premiums of £600 were paid and the maturity value was £30,478 on 1 January 2010. This represents an increase in value over the year of 6.5%.
Details of the above example and equivalent figures for other policy terms are given in table 2b (and table 3b for mortgage endowment policies).
Stephen Shone added:
"Scottish Life with profits plans have generally provided satisfactory returns over the longer term. For example, a 25-year savings endowment, with premiums of £50 a month, produced a maturity value of £30,478 on 1 January 2010. This equates to a return of 5.2% a year, even without allowance for the cost of providing valuable life cover. Shorter term returns have suffered from difficult investment conditions.”
Details of the above and figures for other terms and for personal pension plans are given in tables 2a, 3a, 5a and 6.
Stephen Shone concluded:
"The real rate of return (ie over and above inflation) for a 25-year savings endowment was 2.2% a year, reflecting the real added value provided by a with profits plan.
"We will continue to manage the Scottish Life Fund in accordance with our Principles and Practices of Financial Management (PPFM), full details of which are available on the Royal London Group website (www.royallondongroup.co.uk). In the current economic situation, we will also monitor the position of the with profits funds on a regular basis, to ensure fair treatment for all policyholders.”
Please find attached details of the new bonus allocation
1This announcement relates to Scottish Life with profits business written prior to 1 July 2001 (the date that Scottish Life was acquired by Royal London) in the ring-fenced Scottish Life Fund
2Based on a male aged 30 next birthday at outset
3Based on a male retiring at 65 paying £200 per month for 20 years.
4Based on a male retiring at 65 investing a £10,000 single premium for 20 years.
- ENDS -
For further information please contact:
Scottish Life
Alasdair Buchanan, Head of Communications
0131 456 7133
Polhill Communications
Sally Biggs
0207 655 0520
Editor’s Notes:
1. Terminology Explained
Conventional with profits
Premiums secure a guaranteed benefit (for example a guaranteed cash sum called the "sum assured" or a guaranteed pension). A regular bonus is added, normally each year, to the guaranteed benefit and regular bonus already added. A final bonus may also be added at the date of a claim on the policy.
The guaranteed benefits including regular bonus already added are not payable at face value when a policy is cashed in early. Final bonus is not normally payable on cashing in although the amount paid may make some allowance for final bonus.
Final bonus is an additional bonus which represents the returns payable on a policy which have not already been provided by the addition of regular bonus.
2 Additional information
Past performance is not a guide to the future. Investment returns may fluctuate and are not guaranteed. Future payouts can go down as well as up.
The figures quoted are only illustrative. An assessment of an individual’s need must be confirmed and Key Features provided, together with a projection which is personal to an individual’s circumstances, if a recommendation is made.
3 Scottish Life was founded in 1881 in Edinburgh as a proprietary company, becoming a mutual company in 1968.
On 1 July 2001, Scottish Life demutualised and transferred its business to The Royal London Mutual Insurance Society Limited. Scottish Life is a division of Royal London and is the specialist pensions business within the Group, providing individual and group pensions to the market via intermediaries.
Scottish Life and Royal London’s other intermediary businesses are based mainly in Edinburgh where 1,150 staff are employed, with 700 working in other parts of the UK and overseas.
Royal London Group is a specialist financial service provider. Its businesses focus on those sectors of the market which value quality propositions, operating through a number of brands:
- Scottish Life – UK pensions market
- Bright Grey – UK protection market
- Scottish Provident – UK protection market
- Royal London 360° – offshore investment markets
- RLAM – fund management
- RLAS – life and pensions administration
- Fundsdirect / Ascentric – funds supermarket; Wrap platform
Royal London also distributes life and pensions products through Santander’s UK branch networks.
Royal London is the largest mutual life and pensions company in the UK with Group funds under management of £35.9 billion. Group businesses serve around 3.4 million customers and employ 2,800 people. Figures quoted are as at 31 December 2009.
