How we manage the With-Profits Fund

With-profits investment is a method of providing a saver with access to a fund, where their money is pooled with others’ and all customers share in the investment return. Bonuses may be added to their contract, which once added cannot be taken away.

The premiums we collect from with-profits members are pooled together into our With-Profits Fund. The fund is invested in a mix of equities, commercial property, corporate bonds and cash. By spreading its investments this way the Society is not solely dependent on one market. For instance if the value of the stock market were to go down but other investments go up then the effect would be that one counteracts the other.

The Society aims to be fair to all its members and to uphold the promises made to them when they took out their plan. However, any payments made to customers by way of an annual or final bonus must reflect the way in which the value of the with-profits fund has performed throughout the period of investment.

The Society aims to avoid large changes in the amounts paid on comparable plans from year to year. This is known as “smoothing” and is designed to protect investors from some of the sudden movements in the stock-market. In practice, smoothing means that we hold back some of the high investment returns from the good years and use them to boost with-profits payments in years when returns are lower.

Each year we will send you a bonus statement telling you what bonuses have been added to your plan. There are two types of bonus.

Annual bonus – members receive an annual bonus with their with-profits plans. These are also known as reversionary bonuses. They may vary depending on the type of contract you have and once added cannot be taken away (provided that the contract is held to the end of its term and any premiums due are paid). The Board sets these in the 4th quarter of the calendar each year after receiving the advice of a professional adviser (the “with-profits actuary”) who considers investment performance, current interest rates and the Society’s financial strength.

Final bonus – when a plan matures or is cashed in we will often add a final bonus. This will vary according to the type of contract you have. Final bonuses are not guaranteed and are not known until the time of payment. For most plans the final bonus rates are determined at the start of each quarter, but may be varied at any time. Final bonuses do not apply to the Monthly Savings ISA policies issued between 6th April 2015 and 5th April 2020. Final bonuses do apply to Monthly Savings ISA policies issued from 6th April 2020.

The final bonus (or the rate of annual bonus in the case of the Monthly Savings ISA and Monthly Savings Junior ISA) is intended to ensure that payments to members are broadly equivalent to the premiums paid in, accumulated to allow for:

• our expenses or charges
• the investment return, allowing for smoothing, and
• any allowance for taxation or the cost of providing death benefits, where applicable.

Although the Society has low administration costs, they have a greater effect on the return to members for plans of short duration.

Overall, it is the intention of the Society to pay out the money made by its investments on their premiums back to its members. To the extent that the Society has more assets than it needs to pay members at a particular moment in time these assets or “estate” will be carried forward to protect members against large drops in returns in the future and in particular to smooth their benefits as described above. It is also used to support the guaranteed benefits, that is, the sum assured under the contract and annual bonuses already added to it.

Additionally this greater financial strength enables the Society to make some investments with a higher risk. We will always keep these under review, and will not take any unnecessary risks with the investments we make on behalf of our members.

The Society has an investment strategy that is regularly agreed by the Board. There are risks but we aim to keep these as low as possible and investment managers are restricted in how they can invest our funds.

We maintain a mixed investment portfolio in order to maintain stability of returns, but we also have sufficient depth to our finances to allow for some of our assets to be invested in higher risk investments such as equities where returns may be greater.

Risks to the business are regularly assessed and adjustments made as necessary.

All surrender values remain subject to the discretion of the Society and are not generally guaranteed.

The Society aims to keep charges for acquisition and administration costs as low as possible and these are reviewed on an annual basis.

The Society does not pay commission to anyone.

We also make a charge to the fund for the cost of providing guarantees.

If you would like to see a copy of our Principles and Practices of Financial Management (PPFM) or you would like to speak to someone about anything on this website then please give us a call on 01689 891454.

Visit the PPFM page