With-profits overview

What is a with-profits investment and how does it work?

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.

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 (you should check your plan documents to see if and when a guarantee applies)
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.

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.

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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

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.

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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 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.

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Bonuses

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.

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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.

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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

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.

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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.

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Smoothing

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.

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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.

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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.

More about with-profits

With-Profits Committee

Our with-Profits Committee provides independent input to protect your interests. This page tells you how.

More about the committee
With-profits information documents

Here you'll find our with-profit documents including bonus review, quarterly investment reports, with-profits guides, PPFMs and annual reports to policyholders.

View the documents

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