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Here, you can find out exactly what with-profits investments are and how they work. So you’ll have the information you need to decide whether a with-profits investment is right for you.
Please remember, there’s a risk that the value of your investment could go down rather than up, and you may not get back the amount you invested. Although investments in with-profits have no fixed term, you should be prepared to invest for at least 5 to 10 years.
Most people invest in with-profits funds because they want:
- The potential for their money to grow.
- A regular income (as a return of capital) or withdrawals.
- A mixture of both.
You can’t invest in our With-Profit Fund directly. Instead, you have to invest through an investment bond, a pension plan or annuity. You can find out how we manage our With-Profits Fund by reading the following useful guides.
How your money aims to grow
With-profits is a type of investment in which 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 amount of 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 are not guaranteed and the amount (or rate) of any bonus can go down as well as up. However, once bonuses have been added to your investment bond, pension plan or annuity they cannot be taken away.
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 plan, it might also be paid when you take your pension benefits.
- An additional bonus – which may 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).
‘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 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.
- Because your money is invested in a mix of assets such as equities (shares), property, corporate bonds and gilts, we can't guarantee that your investment will grow.
- There may be times when smoothing cannot fully protect your investment and we need to apply what's known as a market value reduction (often shortened to 'MVR'). If you make a withdrawal or switch to another fund whilst an MVR is in force, the value of your investment will be reduced. Normally we won't apply an MVR if you take benefits from a pension policy on the date you originally told us you were going to retire. An MVR will not apply on a death claim.
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 and you may get back less than you originally invested.
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 lower risk investments include gilts, corporate bonds, cash and cash alternatives.
The types of asset we invest in
You can find out what the current asset mix is by reading our useful guides. We use our investment expertise to decide the best selection of assets (or asset mix) in which to invest. Not all products will have the same asset mix.
How we manage the funds
As an investor in our With-Profit Fund, you can be confident that your money will be handled with expert care and attention.
Guides to explain our principles and practices
To help you understand how we manage the With-Profit Fund in which you’re invested, we produce two guides.
There are highly technical guides called the Principles and Practices of Financial Management (PPFM) and there are simplified, more reader friendly versions. These guides can be downloaded from our With-Profits useful guides page.
Ensuring fairness through our With-Profits Committee
We're committed to treating our customers, as a group, fairly at all times. To support this, we have a With-Profits Committee which brings independent expertise and oversight, to ensure fairness is fully considered in our with-profits decision making.
Need more help?
For more information about with-profits or to help you to decide if with-profits is suitable for you, you should seek financial advice.
If you don't have a financial adviser you can find an adviser in your area at Unbiased. Where advice is provided, there may be an additional cost to you.