We can only provide a high level overview of with-profits here. For more detailed information you should read the Understanding 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.
These features can make with profits a good investment.
As with any investment the value of with profits investments can go up or down and may be worth less than what was paid in.
Watch our video to find out more about how with profits investments can work when they are part of a pension.
- 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.
As with any investment the value of your fund can go up or down and may be worth less than what was paid in.
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 Understanding With Profits guide for your type of plan.
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, see the With Profits Pension Annuity Understanding With Profits guide.
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?
- on death
- on the maturity date of your plan, as long as you have paid all premiums due
- on the retirement age selected when your plan started. For more information see Unitised With Profits Pension Payouts (pdf, 226kb)
For more details on guarantees see the Understanding With Profits guide for your type of plan.
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.
Most types of with profits investment can benefit from bonuses. The main types are regular and final bonuses. Stakeholder pensions do not have 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.
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 Understanding With Profits guide for your type of plan.