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You asked: What is smoothing?
Smoothing is a method of reducing (or smoothing out) the ups and downs in the value of your investment by paying out the returns through a system of bonuses.
Smoothing is only used for with-profits investments.
With smoothing we keep back some of the returns the With-Profit Fund earns in good investment years and use them to help pay bonuses in poor investment years. Losses made in poor investment years may also reduce returns in good investment years.
In a with-profits fund, instead of simply sharing out what the fund makes – or loses – each year, the fund aims to even out some of these variations in performance.
There may be times, however, when smoothing cannot fully protect your investment from poor stock market conditions. This can happen following a large or sustained fall in the stock markets or when investments returns are below the level we normally expect. In these circumstances, we will apply a market value reduction (MVR).For a With Profits Pension Annuity, in circumstances where smoothing cannot fully protect your investment, we will not apply any bonuses.
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