With-profits investment

You’ve already invested in our With-Profit funds (either through your pension plan, an annuity, investment bond or endowment). But do you understand exactly what they are and how they work?

If you’re unsure of anything about your investment in our With-Profit funds, you should find the answers here.

The basics

Investment in our With-Profit Fund offers the potential for returns that are higher than those received from a bank or building society average savings account. It should be seen as a long-term commitment (at least 5 to 10 years).

There is a little more risk involved, though. To benefit from these potentially higher returns, you should consider that there’s a risk the value of any investment you make could go down rather than up and that you may not get back the amount you invested. It’s also worth bearing in mind that savings accounts come with a smaller risk of losing your money than with-profits investments, any interest you earn is guaranteed, and it’s easier to access your money through them.

Most people invest in with-profits funds because they want:

• The potential for their money to grow
• A regular income (as a return of the capital) or withdrawals
• A mixture of both.

You can’t invest in our With-Profit funds directly. Instead, you’re likely to have invested through an investment bond, pension, endowment or annuity.

How your money can grow

With-profits is a type of investment where the returns earned by the fund are shared out through a system of bonuses using a process called ‘smoothing’. We will first explain how bonuses work, and then describe where smoothing fits into this.

How bonuses work

If you put some money in our With-Profit Fund, your investment will grow when bonuses are added to it (the With-Profit Income Fund works slightly differently, see our FAQs for more information).

The exact value of each bonus – and which one(s) you receive – depends on how well the With-Profit Fund has performed and which product you’ve invested through. Bonuses can go down as well as up and are not guaranteed to be paid.

They can include:

• A regular bonus – these are announced at least once a year, no matter which type of product you’ve invested in.
• A final bonus – which may be paid when you make a claim, withdrawal or switch to another fund. If you invest through a pension, it might also be paid when you take your pension benefits.
• An additional bonus – which might be paid on top of your regular bonus if the fund performs particularly well (only if you’ve invested in with-profits through the With Profits Pension Annuity, or With-Profit Income Fund option, available through Portfolio, our investment bond).

For more in-depth information about bonuses, read our useful guides or frequently asked questions.

‘Smoothing’ helps your investment grow steadily

With-profits investments are designed to grow steadily in value from year to year*, rather than being subject to the significant ups and downs of the stock market. That’s because we use a process called ‘smoothing’.

We ‘smooth’ fluctuations in the value of your investment by holding back some of the returns in good investment years. We then use that money to help pay bonuses in years when the performance hasn’t been as good. Equally, losses made in poor investment years may lead to lower bonuses in good years.

*The With-Profit Income Fund works slightly differently. Find out more about the With-Profit Income Fund

The downsides

• Because of how your money is invested (in a mix of equities, corporate bonds and other assets), we can’t guarantee that your investment will grow. Its value can go down as well as up and you may not get back the amount you invested.
• There may be times when smoothing cannot fully protect your investment and we need to enforce what’s known as a market value reduction (often shortened to ‘MVR’). If you make a withdrawal when one is in force, the value or your investment will be reduced. Find out more about market value reductions.
• If you make switches or withdrawals before your policy matures, or if you take pension benefits before the original date you told us you were going to retire, the final value of your investment may be affected.

Not all of these risks apply to every with-profits investment. They vary depending on how you invest in our With-Profit Fund.

If you’d like to find out more, please call us or speak to your financial adviser. If you don’t have an adviser, you can find one in your area at unbiased.co.uk.

How your money is invested

As a with-profits investor, your money is pooled with others’ and invested in a range of different assets (known as an asset mix), which make up our With-Profit Fund. By investing in a range of different assets rather than just one, we aim to achieve a more balanced return. However, this is no guarantee that the value of your investment won’t go down.

The fund will always hold a mixture of higher and lower risk assets to help achieve its objectives. Higher risks assets include equities and property; medium and low risk investments include gilts, corporate bonds, cash and cash alternatives.

The types of asset we invest in

We use our investment expertise to decide the best selection of assets (or asset mix) in which to invest. They include:

• UK and international equities

  Equities are shares in companies listed on stock exchanges around the world. As shares can rise and fall in value very easily, equities are riskier than many other investments, but usually offer the greatest potential for higher returns in the long run.

• Property

  This means investment in commercial property, such as offices, factories and retail outlets, which can also rise and fall in value.

• Gilts

  These are loans to the UK government. The government pays interest on the loan and pledges to repay the debt in the future.

• Corporate bonds

  These are loans to UK and international companies. The company pays interest on the loan and pledges to repay the debt at a certain point in time. Corporate bonds are seen as riskier than gilts because companies are more liable to fail to repay the loan than governments, but they often offer a higher rate of return to balance out the higher risk.

• Cash, and cash alternatives

  This includes a range of short term deposits (cash) - similar to a bank/building society account – and money market securities (cash alternatives), which are interest generating investments, issued by governments, major banks and other institutions. Cash and cash alternatives play an important role in providing a balanced return.

How we manage the funds

As an investor in one of our With-Profit funds, you can be confident that your money will be handled with expert care and attention.

Guides to explain how we manage the With-Profit Fund

To help you understand how we manage the With-Profit Fund in which you’re invested, we produce two guides.

There’s a very detailed, highly technical guide called the Principles and Practices of Financial Management (PPFM) – download it here.

And there are some simplified, more reader-friendly versions. Some of the information in these may not be applicable to your specific policy, but will give you a clearer understanding of how the with-profits fund is managed. Download the simplified, more reader-friendly versions here.

Ensuring fairness through our With-Profits Commitee

We’re committed to treating all of our customers fairly.

To support this, we have a With-Profits Committee which brings independent expertise and oversight, to ensure we fully consider fairness in our with-profit decision making.

Read more about the With-Profits Committee

Need more help?

Call one of our advisers using the number listed on the right, or get answers to the most-asked questions.

Of course, you could also speak to your own financial adviser. If you don’t have one already, you can find one in your area at unbiased.co.uk.

WC02154 04/2012