With Profits Overview

With profits, a guarantee for your pension.

When you're investing in your pension, you're investing for the long term.
Along the way, markets can be bumpy and with most investments, what you finally receive depends on how well the market is performing at the time.

Seeing the value of your pension investments rise and fall with the markets can be unsettling, especially as you get closer to your retirement date. But there are investments that can give you peace of mind in uncertain times.

With profits can protect your pension when markets perform badly, but still let you benefit from some market growth. And most with profits investments are designed to pay out at least a guaranteed amount on the retirement date you agreed when you took out your plan.

With profits investments can form all or part of your pension. The money you put into a with profits fund is pooled with other investors' money and invested in a mixture of shares, bonds, property and cash. With profits returns depend on how these underlying investments perform. But unlike most other types of investments, you can also benefit from guarantees and bonuses.

Let's take a look at how the guarantee works.

Most investments closely follow the peaks and troughs of the markets.
But with profits returns generally follow a smoother path. This smoothing means you receive some but not all of the growth from the underlying investment, but at the same time you won't be as affected by any downturns in the market. You'll also have the reassurance of a guarantee.

The guarantee varies from fund to fund. But say for example, your investment has a 4% guarantee, it means that the guaranteed amount will grow by at least 4% a year. Standard Life will pay at least the guaranteed amount if you buy an annuity at the agreed retirement date. But their current practice is more generous than this, so they pay at least the guaranteed amount on the agreed retirement date, even if the money is paid into another type of plan.

The guarantee can be a very valuable feature of with profits. It's worth bearing in mind that this kind of guarantee is no longer widely available on the open market and it's not generally available to new Standard Life customers.

Standard Life also aims to increase your guaranteed amount by adding regular bonuses. Regular bonus rates are set at least once each year; your annual statement will tell you what that rate is.

If at retirement the value of your with profits investment is greater than the guaranteed amount, Standard Life will give you a final bonus so that you get the benefit of the growth.

So what could this mean in practice? Let's look at two scenarios.

You've paid in £45,000. Bonuses have added £20,000, giving you a guaranteed amount of £65,000. But on your retirement date the value of your investment is £70,000, so Standard Life pays the extra £5,000 growth as a final bonus.

In the second scenario, your guaranteed amount is still £65,000.

You've paid in £45,000 and bonuses have added £20,000. But the market has fallen so that the value of your investment is now £50,000. However, Standard Life still pay the guaranteed amount of £65,000.

These figures and graphs are just illustrations, and don't show actual policy performance. The amount you'll get back from your policy is likely to be different.

It's important to bear in mind that if you transfer out of with profits before your agreed retirement date you will lose your guarantee. And if you have a stakeholder pension, you can benefit from smoothing but not guarantees and bonuses.

To sum up... with profits investments protect your pension in falling markets, and still allow you to benefit from some market growth. You also have the reassurance of a guarantee.

All of this means they're one of the most valuable and secure investments you can hold. For details of how with profits works for your individual policy, please check your documents or the information online.

With profits investments, particularly those with guarantees, are generally not available to new customers. So if you have one with us it's important to understand how it works.

If you transfer or surrender your plan you will lose any guarantee that you have.

We can only provide a high level overview of with profits here. For more detailed information you should read the With Profits guide for your type of plan.

What is a with profits investment?

A medium to long-term investment that can:

  • Help protect your plan value from short-term market movements
  • Pay a guaranteed amount in some circumstances (check your plan documents to see if / when a guarantee applies) 

The with profits fund is invested in a mix of assets, including equities, property, bonds and cash and the return on these is one of the factors that affects the value of your with profits investment. Our aim when managing our with profits business is to provide growth over the long term, while maintaining an appropriate level of financial strength so we can meet all contractual obligations to our customers.

As with any investment the value of with profits investments can go down as well as up and may be worth less than what was paid in.

Watch our video at the top of this page to find out more about how with profits investments can work when they are part of a pension.

Smoothing

  • Helps protect your with profits investment from short-term market movements
  • Provides some protection and stability to
    • plan values
    • payments from a With Profits Pension Annuity
  • Generally means that when there are financial market highs, you can benefit over time and when there are lows your plan value doesn’t immediately suffer the full effects.

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

How does smoothing work?

You can see in the graph below how the value of a with profits investment could fluctuate over time without smoothing (solid line) and how smoothing could affect the payout value (dashed line). The payout will be smoothed down at times and smoothed up at others.

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.

For more details on smoothing see the With Profits guide for your type of plan.

Guarantees

Guarantees are an important and valuable feature of many types of with profits investments. Stakeholder pensions do not have guarantees.

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

With Profits Pension Annuity guarantees work in a different way, please ask your usual Standard Life contact for a copy of the with profits guide for your plan.

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

How do guarantees work?

The graph below 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 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.

You can see in this example that the payout value can be 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.

This graph is for illustrative purposes only and 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.

When do guarantees apply?

Guarantees apply:

For more details on guarantees see the With Profits guide for your type of plan.

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.

Bonuses

Most types of with profits investment can benefit from bonuses. The main types are regular and final bonuses. Stakeholder pensions do not have bonuses.

Regular bonuses

We aim to increase your plan’s guaranteed amount over time. 

  • We can do this by adding regular bonuses, and
  • Some with profits investments have a guaranteed growth rate.

If the regular bonus rate is zero no bonus is added to the guaranteed amount until we set a new rate. But if your with profits investment has a guaranteed growth rate the guaranteed amount continues to increase.

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

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 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.

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.

For more details on bonuses see the With Profits guide for your type of plan.

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