Mortgage Endowment Promise

Projections carried out shortly after the MEP was introduced showed that certain eligible planholders ("MEP Top Up Planholders") would have a shortfall when their plans matured, even if the future earnings on the assets in which their plans were invested were on average 6% each year (after tax). Therefore, the MEP also provided that, subject to fulfilment of the conditions of the MEP, a top up payment would be paid to each of these planholders on maturity to reduce the impact of any shortfall. The maximum amount of this potential top up ("the Maximum Top-Up Amount") was equal to the shortfall estimated at the time those projections were made, assuming that the earnings from that time until maturity on the assets in which their plans were invested were on average 6% each year (after tax). This was communicated to each MEP Top-Up Planholder shortly after the MEP was introduced.

Working out whether a payment is due under the MEP for MEP Top-Up Planholders and, if it is, the amount of the payment, involves several steps, as follows:

We calculate the shortfall amount. This is the amount by which the actual maturity value falls short of the targeted maturity value. If the actual value exceeds the targeted value there is no shortfall amount and there is no payment under the MEP.

We then apply the 6% a year test. If the earnings on the assets backing the plan have been on average at least 6% a year (after tax), over the period from 28 September 2000 until the maturity date, then the 6% a year test has been met.

If the 6% a year test has been met, the top-up payment we make ("the MEP payment") is a percentage of the shortfall amount.

If the 6% a year test has not been met, the MEP payment is normally a percentage of the Maximum Top-Up Amount. The MEP payment will be restricted, if necessary, to be no more than the shortfall amount.

The demutualisation Scheme sets out the rules for calculating the percentage that we use when calculating the MEP payment in Step 2. As required by the Scheme, we recalculate the percentage at least once a year.

For more technical detail on how the percentage is calculated, and how we then go on to determine what payment, if any, is to be made under the MEP, please read the illustrative example guide PDF. Please note that this is a detailed and technical explanation.

We expect that the percentage used to calculate the MEP payment (see"How does the MEP apply to MEP Top-Up Planholders?") will be in the region of 40% to 60%. For example, the percentage being used at the start of 2014 was 49%. The percentage may in future vary considerably. Its amount depends largely on the course of investment returns achieved from 1 October 2005 up to a date shortly before the maturity of the plan on the substantial majority of the assets backing most of our UK with profits policies. In extremely favourable circumstances the percentage could be as much as 100% but it could also, in very adverse circumstances, be zero. We recalculate the percentage at least once a year with changes normally being made on 1 January. However, changes to the percentage can be made more frequently. This possibility allows additional checks to be made on investment performance which might be important in times of large movements in investment markets.

The MEP payments are intended to be broadly equivalent to what might have been paid by The Standard Life Assurance Company if it had remained a mutual company, in accordance with the letters it sent to MEP Top-Up Planholders following the announcement about the MEP made in the UK in October 2004 and in Ireland in January 2005.

In general it seems unlikely that MEP policies will meet the 6% a year test, at least on a short to medium term view of potential investment returns. The outcome of the test for an individual plan will only become known at its maturity date. Also, as explained above, the percentage used in the calculation of MEP payments is likely to change from time to time. It must therefore be emphasised that it is not possible to determine accurately the amount, if any, that will be paid to a MEP Top-Up Planholder until the relevant plan has matured.

In order to qualify for a payment under the MEP, a MEP Planholder must also satisfy certain eligibility criteria. These criteria must be met from the first review of your MEP plan, following the introduction of the MEP, up to your plan maturity date:-

1. All payments due from you under your plan must have been made in full; and

2. Your plan must have remained fully invested in with profits or the managed fund, or a mix of these.

We will not make any MEP payment if, at any time during that period:-

1. You reduce the payment amount (except if you change the plan from two or more lives to single life);

2. You change the term of your plan;

3.You partially or fully cash in your plan or stop payments permanently or use the Early Maturity Option (if this applies to your plan); or

4.The plan is absolutely assigned to a third party (except in the case of divorce/dissolution of civil partnership) including, for example, by sale as a Traded Endowment Plan or by way of a gift.

If you are contemplating altering or assigning your plan, and you are not sure whether this will cause your plan to cease to be eligible under the MEP, call our customer services department on 0845 60 60 003 between 9am and 5pm, or speak to your independent adviser. Call charges will vary. If for any reason you are in doubt about the implications of such loss of eligibility, we strongly recommend that you consult your solicitor or independent adviser.