With-profits investments

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 money market instruments (including cash). With-profit 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.

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. We’ll pay at least the guaranteed amount if you take your retirement benefits at the agreed retirement date. But our current practice is more generous than this, for example, we pay at least the guaranteed amount on any date, as long as you are taking your retirement benefits.

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.

We also aim to increase your guaranteed amount by adding regular bonuses. Regular bonus rates are set at least once each year and could be zero. 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, we 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 we pay 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, we 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 may 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 which includes details of our current practice for pension payouts.