The value of your investment can go down as well as up and you may get back less than you paid in. Laws and tax rules may change in the future. Your own circumstances and where you live in the UK also have an impact on tax treatment.
Our with-profits investments aren’t generally available to new customers, so if you’re new to Standard Life and are looking for an investment option you should take a look at our retirement investments page for some ideas.
If you already have a with-profits investment with us, read on for an overview of what this type of investment is and how it works. However, if you’re looking for more detailed information you can read the with-profits guide for your type of plan.
What is a with-profits investment?
A with-profits investment is a medium to long-term investment option that:
- Can help protect your plan value from short-term market movements.
- Pays a guaranteed amount in some circumstances. (You should check your plan documents to see if and when a guarantee applies.)
With-profits investments are a mix of assets, including equities, property, bonds and money market instruments (including cash) and the return on these is one of the main 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.
How do with-profits investments work?
Watch this video to see how they work as part of a pension plan.
How the different features of with-profits investments work
If you’re looking for some more information about with-profits, in the next section we explain how guarantees, bonuses and smoothing works.
Guarantees are an important and valuable feature of many types of with-profits investments. Essentially it's when we pay you at least the guaranteed amount when your with-profits investment comes to an end. 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 differently, please contact Standard Life for a copy of the with-profits guide for your plan. Stakeholder Pension Plans don’t have guarantees.
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 darker line shows how the payout value could change over time. The lighter 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 are guarantees paid?
Guarantees are usually paid:
- When you reach the retirement age you selected when you started your plan. For more information, please see Unitised With Profits Pension Payouts
- When your plan reaches its the maturity date, as long as you've paid all payments due
- On death
For more details on guarantees see the 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. There's likely to be a charge for advice.
Most types of with-profits investments benefit from bonuses. The main types are regular and final bonuses. Our Stakeholder Pension Plan does not have any 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
The graph below shows how a with-profits investment’s guaranteed amount and payout value can change over time and this could result in a final bonus.
The darker line shows how the payout value could change over time.
The lighter 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 a Personal Pension Plan and doesn’t represent actual plan performance. 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.
Smoothing can help to:
- Protect your with-profits investment from short-term market movements
- Provide some protection and stability to both your plan value and any payments from a With Profits Pension Annuity
- Generally ensure 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
But it’s important to know that 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 go down as well as up over time without smoothing (darker line) and how smoothing could affect the payout value (lighter 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 plan 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.