With profits investments - Overview

Looking ahead with peace of mind

Looking ahead with peace of mind

We expect with profits investments to perform better than savings accounts over the long term. They also offer a level of protection if markets perform badly - which can make with profits a good long-term investment for the future.

What is a with profits investment?

A with profits investment is a medium to long-term investment. It may form all or part of a pension, a with profits bond or other savings product. We invest the money you pay us in a mix of assets, including equities, property, bonds and cash. We use the return on these assets to set the payout for your plan.

You’ll find that most with profits investments come with a valuable guarantee. Where the guarantee applies, it provides you with a safety net when returns are poor - making with profits one of the most secure types of investment you could have chosen. Even if your with profits investment has no guarantee it can still offer some protection when markets perform badly.

With profits investments, particularly those with guarantees are generally not available to new customers. So if you already have one with us it’s important to understand how it works.  For example if you transfer or surrender your plan you will lose your guarantee.

As with everything we do, we’re committed to treating our customers fairly. Our independent With Profits Committee helps us make sure your interests are protected.

Smoothing – evens out the market ups and downs

Investment markets can be volatile and experience rollercoaster highs and lows. To help protect you from short-term market movements, your with profits investment has a feature called ‘smoothing’. Smoothing evens out the ups and downs of the market and provides some protection and stability to plan values or, if you have a With Profit Pension Annuity, to your annuity instalments.

Smoothing generally means that when there are highs, you can benefit over time and when there are lows your plan value doesn’t immediately suffer the full effects.

In the diagram below, the solid line shows how the value of a with profits investment could fluctuate over time without smoothing. The dashed line shows how smoothing could affect the payout value of this with profits investment. The payout will be smoothed down at times and smoothed up at others.

Smoothing Graph

This diagram is for illustrative purposes and doesn’t represent actual policy performance. It is only to give you an idea of how smoothing can work.

From time to time, depending on market conditions, smoothing may be reduced or switched off.

Guarantees – for peace of mind

This section does not apply if you have a Stakeholder Pension. Guarantees for With Profits Pension Annuities work in a different way. See your ‘Understanding With Profits’ guide for more information.

Guarantees are an important and valuable feature of with profits investments. Most types of with profits investments have them. We aim to increase your guaranteed amount over time by adding regular bonuses.

If a guarantee applies to your with profits investment when it comes to an end, we will pay you at least the guaranteed amount. If your with profits investment’s payout is worth more, we’ll pay a final bonus on top of the guaranteed amount.

We make deductions from your with profits investment for the cost of guarantees. These don't reduce the guaranteed amount, however the value of your with profits investment allows for them.

How with profits guarantees work

This graph shows you how the value of a with profits investment can change in different market conditions and the benefit of a guarantee.

The solid line shows how the payout value of a with profits investment could change over time.

The dashed line shows how the guaranteed amount can grow over time – this is the minimum amount that we will pay when the guarantee terms are met.

Guarantee graph

This graph is for illustrative purposes only and is based on an individual pension invested in with profits. The graph doesn’t represent actual plan performance. It is only to give you an idea of how guarantees can work. We have assumed a single payment has been invested in a unitised with profits plan and that smoothing is applied to the payout value over this period.

In these market conditions you can see the benefit of the guarantee. The payout value is less than the guaranteed amount when the with profits investment comes to an end, but as long as the guarantee terms apply we top up the payout value to the level of the guaranteed amount.

You can find details of our guaranteed growth rates and regular bonus rates in the following leaflets:

Important

Your guarantee is an important feature of your with profits investment that can be very valuable. Conditions apply for guarantees. For example, if you transfer or surrender your plan you will lose your guarantee. So please seek financial advice if you are thinking of moving out of with profits.

This section does not apply if you have a Stakeholder pension. Bonuses for With Profits Pension Annuities work in a different way.  See your ‘Understanding With Profits’ guide for more information.

Your with profits investment can benefit from bonuses. There are two types: regular and final.

Regular bonuses

Throughout the lifetime of your with profits investment, we aim to increase your guaranteed amount. For most with profits investments we do this by gradually adding regular bonuses. Regular bonus rates are usually set once a year. The regular bonus rate may be zero. This means no bonus would be added to the guaranteed benefits until we set a new regular bonus rate. But if your with profits investment has a guaranteed growth rate the guaranteed amount would continue to increase.

Our aim is to provide competitive with profits returns. To do this we need to strike a balance between the amounts of regular bonuses we add and the amount of final bonus we can pay:

  • Higher regular bonuses mean faster growing guaranteed amounts. But they may also mean lower final bonuses. That’s because the higher the level of guaranteed amount, the more cautiously we need to invest our with profits assets. As a result, we’d expect lower returns, and therefore lower final bonuses, in the long-term.
  • On the other hand, lower regular bonuses mean slower growing guaranteed amounts. This gives us more freedom to invest in higher-risk assets. As a result, we’d expect to provide higher returns, and therefore higher final bonuses, in the long term.

For more information about regular bonuses please refer to our ‘Understanding with profits’ guides.

You can find details of our regular bonus rates in the following leaflets:

Final bonuses

We may pay a final bonus when your with profits investment comes to an end. The amount of any final bonus will depend on a number of factors, including the:

  • payments you make
  • deductions we make
  • investment returns on the assets in the with profits fund
  • amount of smoothing we apply

For more information please refer to our ‘Understanding with profits’ guides.

This graph shows how a with profits investment’s guaranteed amount and payout value can change over time and how this could result in a final bonus.

The solid line shows how the payout value of a with profits investment could change over time.

The dashed line shows how the guaranteed amount can grow over time – this is the minimum amount that we will pay when the guarantee terms are met.

Bonus graph

This graph is based on an individual pension and does not show the actual performance of any Standard Life with profits pension investment. It is only to give you an idea of how final bonuses work. We have assumed a single payment has been invested in a unitised with profits plan and that smoothing is applied to the payout value over this period.

As with any investment the value of your fund can go up or down and may be worth less than what was paid in.

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