Stakeholder Pension Plan Key Features

Transcription

1 Stakeholder Pension Plan Key Features This is an important document. Please read it and keep for future reference. The Financial Conduct Authority is a financial services regulator. It requires us, Standard Life, to give you this important information to help you decide whether our Stakeholder Pension Plan is right for you. You should read this document carefully so that you understand what you are buying and then keep it safe for future reference. This key features document is for a UK pension plan and is for use by UK residents only. Helping you decide This key features document will give you information on the main features, benefits and risks of the Stakeholder Pension Plan. An illustration is also enclosed. It will show you the benefits you may get in the future. Your key features document and illustration should be read together. We will always be happy to answer any of your questions or give you more information but we can t give you financial advice. Our contact details can be found on page 08. You can ask your financial adviser or go online at for any documents mentioned. 1. Its aims To offer you a way of saving for your retirement. The new retirement income options available from age 55 (57 from 2028) introduced from 6 April 2015 are not available under this product. You can access these new options by transferring to another product that allows this. 2. Your commitment To remain invested in the plan until you choose to take your benefits. You can transfer it to another pension provider or registered pension scheme at any time before you start taking your benefits. To make at least one payment into your plan. To tell us if you stop being eligible to receive tax relief on your payments. 3. Risks This section is designed to tell you about the key product risks that you need to be aware of at different stages of the plan. At the start of the plan If you change your mind and want to cancel the plan you may get back less than you paid in. Please see Can I change my mind? on page 06. If you re transferring benefits from another pension scheme, there is no guarantee that what you ll get back from the Standard Life Stakeholder Pension Plan will be higher. You may get back less. You may also be giving up certain rights in your other pension scheme that you ll not have with the Standard Life Stakeholder Pension Plan. It is important that you take advice from a pension transfer specialist before you consider transferring out of a defined benefits scheme. If you are part of a corporate scheme, you could lose out on lower charges and other benefits if you transfer out. There is a high risk of you losing valuable benefits if you transfer from a scheme with existing benefits. Where some benefits were built up in an occupational scheme prior to 6 April 2006, there may be a right to take more than 25% of the benefits as a lump sum at retirement. This right would be lost on transfer and the lump sum would be limited to 25%. Also there may be a right to start to receive benefits before reaching age 55. This right would be lost on transfer and the earliest when benefits could be taken would be age 55, currently. If your transferring on a buddy basis these rights will not be lost. Stakeholder Pension Plan Key Features 01/08

2 Investment Your plan may invest in different types of investments, including investments based on stocks and shares, which carry different levels of risk. The value of your plan can go up or down, and may be worth less than you paid in. There are also risks involved in relying on the performance of investments within a single asset class, rather than spreading your investments over a variety of asset classes. If you do not specify an investment choice, we will invest all payments in the registered default lifestyle profile, which is the Stakeholder Universal Strategic Lifestyle Profile. Please be aware that this may not fit your individual needs. There are other investment risks you need to be aware of. These include: For with profits investments, we apply smoothing to even out the ups and downs of investment performance, which means that your benefits could be lower or higher than they otherwise would have been. We may reduce or remove smoothing in certain circumstances Some funds invest in overseas assets. This means that exchange rates and the political and economic situation in other countries can significantly affect the value of these funds. Your investment may be worth less than you paid in You ll probably be one of many investors in each fund you re invested in. Sometimes, in exceptional circumstances, we may wait before we carry out your request to transfer or switch out of a fund. This is to maintain fairness between those remaining in and those leaving the fund This delay could be for up to a month. But for some funds, the delay could be longer: It may be for up to 6 months if it s a fund that invests in property, because property and land can take longer to sell If our fund invests in an external fund, the delay could be longer if the rules of the external fund allow this. If we have to delay a transfer or switch, we ll use the fund prices on the day the transaction takes place these prices could be very different from the prices on the day you made the request. For further information about the investments available on your Stakeholder Pension Plan and the risks involved, please refer to How to choose the right investment choices for your pension (SPP5). Taking your benefits What you get when you retire isn t guaranteed. Your guaranteed income (lifetime annuity) may be lower than shown in your personal illustration. This could happen for a number of reasons, for example if: you stop paying into this pension plan, or take a break payments into the plan are lower than illustrated the performance of the fund(s) you have chosen is lower than illustrated tax rules and legislation change plan charges increase above those illustrated you buy your pension guaranteed income (lifetime annuity) at a different age from the age used in your illustration for with profits investments, your plan value is less than it otherwise would be because of smoothing In addition, the cost of buying a guaranteed income (lifetime annuity) when you retire could be higher than illustrated, for example, due to interest rates being lower and/or people living longer. 4. Questions and answers What is a Stakeholder Pension Plan? It s a pension plan that lets you save for your retirement in a tax efficient way. How flexible is it? You can make single or regular payments, or a combination of both, at any time. You can change the amount of your regular payments at any time, subject to the minimum payment amount. Please see How much can be paid into my plan each year? on page 03. Regular payments are usually monthly or annually, but you can choose any frequency that suits you. Payments are usually payable by direct debit, debit card such as Switch/Delta etc., telegraphic transfer, cheque or standing order. You can stop paying or take a payment break and restart later if your circumstances change. This will reduce your future pension. You can make a transfer payment from another pension scheme at any time. There is no guarantee that what you ll get back from the Standard Life Stakeholder Pension Plan will be higher. You may get back less. You may also be giving up certain rights in your other pension scheme that you ll not have with the Standard Life Stakeholder Pension Plan. 02/08 Stakeholder Pension Plan Key Features

3 Single and regular payments can be made by your employer or a third party. Your payments can be made by your employer from your after tax earnings. Changes to your payments made this way are subject to your employer s agreement. If you leave your current employer, you will remain invested in the plan and you can continue making payments into it. However, any payments made by your employer will stop. You can transfer your plan to another pension plan (either with Standard Life or another provider) or registered pension scheme at any time before you start taking your pension. Am I eligible? If you re under 75 and a UK resident, you can normally join this plan. 4.1 How much can be paid into my plan each year? If you re employed, both you and your employer can pay into your plan. Payments can also be made by a third party. The minimum payment is 20 including basic-rate tax relief. Regular payments are usually payable by direct debit. You can also choose to make one off payments, which are usually by cheque. In each tax year, if you are a relevant UK individual you can pay: You are a relevant UK individual if: you are resident in the UK for tax purposes, or you have relevant UK earnings, or you were a UK resident sometime in the previous five tax years and when you joined, or you have, or your husband, wife or civil partner has, earnings from overseas Crown employment subject to UK tax Relevant UK earnings means: If you are employed, the income you receive from your employer in a tax year (including any bonuses, commission or benefits in kind that you receive), or If you are self employed the income you receive in a tax year from carrying out your trade, profession or vocation, or from patent rights This income must be taxable in the UK. If you have other retirement benefits built up under previous occupational pension schemes, Stakeholder pension plans, personal pension plans or pension policies, you can also transfer the cash values of those benefits into this plan. The minimum amount for a transfer is 20. We strongly recommend you speak to a financial adviser before transferring. There may be a cost for this. up to 3,600 (including basic rate tax relief) regardless of your earnings, or up to 100% of your relevant UK earnings for that year (including basic rate tax relief). If your payments exceed the Annual Allowance then a tax charge may apply. See What about tax? on page 05 These limits are set by HM Revenue & Customs (HMRC) and apply to the total payments made by you and any third party to all your pension arrangements. These limits do not apply to payments made by your employer. A tax year runs from 6 April in one year to 5 April in the next year. Stakeholder Pension Plan Key Features 03/08

4 4.2 Where are the payments invested? We offer lifestyle profiles, a range of investment linked pension funds and a with profits fund for you to choose from. We invest 100% of each payment. Each fund is made up of units and we use your payments to buy units in the fund(s) you choose. Lifestyle profiles are designed for customers investing for retirement. Lifestyle profiles automatically change the funds you are invested in based on how long you ve got until your selected retirement date. As you get closer to retirement, the investment aims of the profile move away from growth and towards preparing your pension plan for your selected retirement date. You can only invest in one lifestyle profile at a time. If you invest in a lifestyle profile, you can also invest in with profits, but you can t combine a lifestyle profile with any other investment. As you get closer to retirement the emphasis moves away from growth to preparing your pension fund for your pension benefits at your selected retirement date. This will happen through automatic switching of your funds. If you are starting a Stakeholder Pension Plan and you do not specify an investment choice, we will invest all payments in the default lifestyle profile, which is the Stakeholder Universal Strategic Lifestyle Profile. For more information on how this works, please ask your financial adviser or contact us for our Stakeholder strategic lifestyle profiles guide (GSSLP1). For information on our other lifestyle profiles, please ask for a copy of our Lifestyle profiles guide (GSPP41). If you are already making regular payments into this Stakeholder Pension Plan and you do not specify an investment choice, payments will be invested in line with your current investment instructions. You can switch your payments in and out of various funds to change the mix of investments. We may delay switching in some circumstances. You can only invest in 12 of our funds at any one time. If you choose our investment linked funds, the price to buy or sell one unit in each fund depends on the value of the investments that make up the fund. Your plan value is based on the total number of units you have in each fund. If the unit prices rise or fall, so will your plan value. For information about with profits, please read the enclosed Understanding With Profits booklet. UWP2 applies if your plan started before 10 July Version UWP2A applies if your plan started on or after 10 July The booklet provides information about; how we set with profits payouts smoothing and other discretionary adjustments that can affect payouts how we invest money backing with profits plans. For more information about our funds, please ask your financial adviser or contact us for a copy of our guide How to choose the right investment choices for your pension (SPP5). 4.3 What might I get when I want to retire? Your final plan value could be used to buy a guaranteed income (lifetime annuity), which is an income for the rest of your life, from us, another pension provider or registered pension scheme. The amount of guaranteed income (life annuity) will depend on a number of factors at the time, for example: annuity rates your age and state of health life expectancy rates the options you choose when buying your guaranteed income (life annuity) (for example, choosing a pension that increases in payment each year, or including a pension for a dependant when you die) What choices might I have when I retire? A fixed regular income (annuity) that is guaranteed for life. This locks you into the choices you make at that time and the monthly or annual annuity payments will be taxed as income. A flexible income. This is done by income drawdown and allows you to either withdraw regular income payable monthly or yearly or take unlimited withdrawals. All withdrawals are treated as taxable UK income. You can change your choices at any time as your needs become clearer. Whether you re thinking about flexible or fixed income - take time to shop around for the best deal. You could transfer your pension to another provider and you might get a better retirement income. Cash. You can now take your full retirement savings as cash. 25% is normally tax free but anything over this is taxed as regular UK income. You can also have a combination of the above. With each of these options, you can normally have 25% of the benefits tax free. 04/08 Stakeholder Pension Plan Key Features

5 Not all of these retirement options are available under this product. You can easily access these new options by transferring to another product that allows them. If you choose a flexible income option, it s important to remember that your money stays invested, so its value can go up and down. You may get less back than you paid in. And, if you take it all out as cash, you need to think about the tax you ll pay. We recommend you seek appropriate guidance or advice before you make any decisions. An adviser may charge a fee for this. You can also get free impartial guidance over the phone or face-to-face with Pensionwise. Go to or call The Money Advice Service (MAS) guide is also available on the Pensionwise site. You can choose a smaller pension for yourself so that you also provide a pension for your husband, wife, civil partner or other dependant(s) after you die. You can start taking a pension at any time between the ages of 55 and 75, including while you re still working. You must normally start taking it by age 75 You can take the pension in stages if you want to You can normally start taking a pension before age 55 only on grounds of ill health You can buy your taxable pension from any pension provider or registered pension scheme. 4.4 What about tax? We give a short explanation about tax below. For more information, please read Information about tax relief, limits and your pension (GEN658). You can find this at or phone us for a paper copy. Tax relief on payments to your plan You ll get tax relief on payments normally at your highest Income Tax rate. We ll claim the tax relief for you at the basic rate from HMRC and invest it in your plan. If you re a higher or additional rate taxpayer, you ll need to claim the extra tax relief from HMRC. If you exchange salary in return for a payment from your employer to your plan, you don t get tax relief on that payment. But you do save tax on the salary you have exchanged. HMRC has an Annual Allowance for the total payments that you, your employer and any third party can make to all your pension plans (excluding transfer payments). There are circumstances where you may have a personal Lifetime Allowance that s higher; speak to your financial adviser for more details. You may have to pay a tax charge on any payments that exceed this limit. If the total payments to all your plans are less than the limit in one tax year, you may be able to carry forward the unused allowance for up to three tax years. The funds you invest in are not liable for UK Capital Gains Tax. Tax treatment when taking your benefits You can normally take some of your fund as a tax-free lump sum at your pension date. HMRC has a Lifetime Allowance on the total funds in pension plans that can be used to provide benefits to you. There are circumstances where you may have a personal Lifetime Allowance that s higher; speak to your financial adviser for more details. Your pension will be taxed in the same way as your earned income. Your dependants won t normally have to pay tax on any lump sum they get if you die before you retire. However, if any part of the lump sum exceeds your Lifetime Allowance, that part will be liable to a tax charge. Laws and tax rules may change in the future. The information here is based on our understanding in April Your personal circumstances also have an impact on tax treatment. 4.5 What are the charges & discounts? We charge for managing your plan and investments. We take the charges from the fund value. There is an annual charge of 1% of the value of the funds you accumulate. This is taken as a daily fund management charge. If your fund exceeds 25,000 we reduce the effect of the yearly charge by adding extra units to your fund each month to the value of 0.1% of your fund each year. If your fund exceeds 50,000, we add extra units each month to the value of 0.2% of your fund each year. These figures are current values and could change in the future. Stakeholder Pension Plan Key Features 05/08

6 We ll continue to take charges each year even if you stop making payments. This could mean that if you stop making payments and don t restart them, our charges could reduce your plan value by the time you retire. If you ve asked for a personal illustration, it will show our charges and their effect on the value of your Stakeholder Pension Plan over the time you have the plan. We regularly review our charges and may alter them to reflect changes in our overall costs, or assumptions. Any increases will be fair and reasonable. However, as the Government has set a maximum charge that can apply to Stakeholder pensions (currently 1.5% each year for the first 10 years and 1% each year after that), the charges on your plan cannot exceed these limits. These Government limits could change in the future. 4.6 Other important questions What happens to the plan if I die before I retire? We will pay out your pension pot, including any life cover, to your beneficiaries inheritance tax-free. If you die before age 75, this will normally be tax-free If you die after age 75, this will normally be taxed as income You can tell us about the people and causes you care about by filling in our Payment of death benefits from (PLD21) What other benefits can I choose? You can choose to protect your payments against sickness and disability in the future. To do this you ll need to buy a separate Pension Contribution Insurance plan. If you re considering this cover, please ask your financial adviser or contact us for details. Can I transfer my plan? You can transfer your plan to another pension provider or registered pension scheme at any time before you start taking a pension. We make no transfer charge. However, if you have invested in with profits, we may reduce or remove smoothing in certain circumstances. Can I change my mind? You have a legal right to cancel your contract if you change your mind. You have a 30 day period to consider if you want to change your mind. This 30 day period starts from the date you receive the plan documents. During this period, if you decide you want to cancel, you should call us or write to us at the address shown in the How to contact us section on page 08, instructing us to cancel the contract. Please make sure that you include your plan number in any correspondence with us. If you start the plan with a single payment and cancel during the 30 day period, you may get back less than you paid in. This is because we may make a deduction to reflect any market loss we have experienced between the date we received your payment and the date we received your instruction to cancel. If you decide to cancel, and we have already received payment, we will refund the payment to the person who made it. Please note, for regular payments, it is only the initial payment that you choose to make that will have cancellation rights. If you decide to increase the level of payment in the future, you will not have the right to cancel that increase. At the end of the 30 day period you will be bound by the terms and conditions of the plan and any money received by Standard Life will not be refundable under the cancellation rule. How will I know how my Stakeholder Pension Plan is doing? We will register you for our online service and send you a user id and password so that you can check your plan details on our website We will send you a yearly statement to show how your plan is doing. You can also get an up to date valuation at any time by going online or calling our customer helpline. 06/08 Stakeholder Pension Plan Key Features

7 5. Other information How to complain We have a leaflet that summarises our complaint handling procedures. If you d like a copy, please ask us. If you ever need to complain, first write to us at the address on How to contact us on page 08. If you aren t satisfied with our response, you may be able to complain to: The Financial Ombudsman Service Exchange Tower Harbour Exchange Square London E14 9SR Phone: Switchboard: Fax: complaint.info@financial ombudsman.org.uk Website: ombudsman.org.uk Complaining to the Ombudsman won t affect your legal rights. Terms and conditions This document gives a summary of Standard Life s Stakeholder Pension Plan. It doesn t include all the definitions, exclusions, terms and conditions, which are given in the Policy Provisions Booklet. For a copy of this booklet, please ask your financial adviser or contact us direct. We have the right to change some of the terms and conditions. We ll write to you and explain if this happens. Compensation The Financial Services Compensation Scheme (FSCS), established under the Financial Services and Markets Act 2000, has been set up to provide protection to consumers if authorised financial services firms are unable, or likely to be unable, to meet claims against them. Your plan is classed as a long term contract of insurance. You will be eligible for compensation under the FSCS if Standard Life Assurance Limited (SLAL) becomes unable to meet its claims. The cover provided for claims of this type is 100% of the value of your claim. If you choose one of our funds that invests in a mutual fund run by another firm (including Standard Life Investments Limited), you are not eligible for any compensation under the FSCS if that firm is unable to meet its claims. SLAL is not eligible to make a claim on your behalf so the price of a unit in our fund will depend on the amount that we recover from the firm. If you choose one of our funds that invests in a fund run by another insurer you are not eligible for any compensation under the FSCS if that insurer is unable to meets its claims. SLAL is not eligible to make a claim on your behalf. For further information on the compensation available under the FSCS please check their website or call the FSCS on Please note only compensation queries should be directed to the FSCS. If you have any further questions, you can speak to your financial adviser or contact us directly. You can also find more information at Law The law of Scotland will decide any legal disputes. Language The English language will be used in all documents and future correspondence. Stakeholder Pension Plan Key Features 07/08

8 6. How to contact us Remember your adviser will normally be your first point of contact. If you have any questions or would like to make any changes to your plan, connect with us today. Register online at: Calls may be monitored and/or recorded to protect both you and us and to help with our training. Call charges will vary. Please have your plan number ready when calling. Standard Life Dundas House 20 Brandon Street Edinburgh EH3 5PP You can also fax us on: About Standard Life Standard Life Assurance Limited s product range includes pensions and investments. Standard Life Assurance Limited is on the Financial Services Register. The registration number is Standard Life Assurance Limited is registered in Scotland (SC286833) at Standard Life House, 30 Lothian Road, Edinburgh EH1 2DH. Standard Life Assurance Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. SPP Standard Life Aberdeen 08/08

9 Understanding with profits Stakeholder plans that started after 9 July 2006

10 This booklet tells you how we manage our with profits business for Stakeholder plans that started after 9 July i A Stakeholder plan is a type of pension plan for which the Government sets maximum charges. The payout depends on the performance of one or more investment-linked or with profits funds. Your plan s with profits units represent your with profits investment. We hold the assets for this Stakeholder with profits business in a sub-fund of the UK Smoothed Managed With Profits Fund called the Stakeholder With Profits 2006 Fund. These assets are used for Stakeholder with profits investors only. The value of your with profits investment is based on, amongst other things, the return on these assets and any smoothing of these returns. There are separate Understanding With Profits booklets for other types of with profits investment, including for Stakeholder plans that started before 10 July This booklet does not in any way: vary the existing terms and conditions of your plan, or create any new or additional obligations, or restrict the way we manage our with profits business. Your plan documents define the terms and conditions that apply to your plan. We can only give a simplified explanation of with profits in this booklet. We set out a fuller, more technical explanation of how we manage this Stakeholder with profits business in a separate document called Principles and Practices of Financial Management for the UK Smoothed Managed With Profits Fund (the UK Smoothed Managed PPFM). Please see the UK Smoothed Managed PPFM if you want more information on the topics covered in this booklet. Our website will always have the most up-to-date version of our Understanding With Profits booklets and of the UK Smoothed Managed PPFM. You can also get a copy of any of these documents by calling us on (Call charges will vary.) If we make any changes to the UK Smoothed Managed PPFM that materially change this booklet we will send you a new booklet, normally at or before the time we send you your next yearly statement. We will also send you a booklet if we propose to change any of the principles we apply in managing this with profits business.

11 How your Standard Life with profits investment works Contents Page Section 1 Introduction 02 What is a with profits investment? 02 Our approach 02 Section 2 What are the bonuses? 03 Section 3 What are your guarantees? 03 Section 4 How do we set payouts? 03 What is an asset share? 03 What are the deductions? 04 How do we set fair payouts? 04 Section 5 What is smoothing? 04 Section 6 How we invest the money backing Stakeholder with profits investments 07 How we decide the asset mix 08 Risks associated with investment 08 Section 7 How we manage risk 08 Section 8 How we manage new business 09 Section 9 How we balance the interests of with profits customers and shareholders 09 Understanding with profits 01

12 1. Introduction What is a with profits investment? A with profits investment is a medium- to long-term investment that aims to offer some protection against short-term movements in investment markets. We invest the money you pay us, and the money paid by other with profits customers, in a pool of assets. The payout for your with profits investment depends on the return we get on these assets. If there were rigid rules, we believe they could require us to take actions that might not be in the best interests of our with profits customers. Our approach Our aim when managing our with profits business is to provide growth over the long term, while continuing to maintain an appropriate level of financial strength so that we can meet all contractual obligations to our customers. This is underpinned at all times by our commitment to treating customers fairly. We make decisions about what to do to achieve this aim. For example, we decide: whether we should apply smoothing for payouts how we should invest the money backing with profits investments. We make these decisions in good faith, and we only take actions that we believe are in the interests of our with profits customers. There are no rigid rules about exactly what decisions we will make. This is why we often say in this booklet we can or we may do something and not we will. Our aim is to ensure that you receive a fair payout when your with profits investment comes to an end. To help us make sure our decisions are fair we have appointed a With Profits Committee to give us independent advice. It reviews and challenges us to justify the actions we propose to take to ensure they re fair for all with profits customers. It also checks that we re managing our with profits business in the way we describe in our UK Smoothed Managed PPFM. You can find out more about the With Profits Committee, including who the members are and how it makes its views known, on our website 02 Understanding with profits

13 2. What are the bonuses? We don t pay regular or final bonuses on with profits investments in Stakeholder plans as the investment performance is already reflected in the value of your units. 3. What are your guarantees? We guarantee that we will not deduct more than the maximum charges allowed under Stakeholder regulations. We don t guarantee with profits investment performance. The value of your units, and therefore your payout, may go down as well as up. You may get back less than you paid in. 4. How do we set payouts? You will receive a fair payout when your with profits investment ends. We use asset shares to help us set fair payouts. What is an asset share? The asset share represents the underlying value of a with profits investment. It allows for: the premiums paid, less any amounts withdrawn, the returns on the assets in the Stakeholder With Profits 2006 Fund, the profits and losses from smoothing with profits payouts for Stakeholder plans, and the deductions we make. The returns on the asset mix are made up of income, for example dividends and interest payments, and changes in asset values. Asset values can go down as well as up, so asset shares can also go down or up. Understanding with profits 03

14 What are the deductions? The deductions are similar to the charges for investment-linked funds available to Stakeholder plans like yours. The deductions that we make can be no more than the maximum allowable under Stakeholder regulations. How do we set fair payouts? Your fair payout is your plan s with profits asset share, adjusted up or down for any smoothing. Any adjustments we make may depend on the size of the investment or why the with profits investment is ending. For example, we may sometimes smooth for payouts that are used to buy an annuity but not other payouts. 5. What is smoothing? Smoothing is the process by which we can even out some of the short-term fluctuations in investment returns to reduce the immediate impact on payouts. We invest the Stakeholder With Profits 2006 Fund in a wide range of assets, including equities (company shares), bonds and money market instruments (including cash). The returns on these assets vary over time and asset values sometimes change sharply over a short period. To offer some protection from this, we may smooth out some of the short-term changes, up or down. 04 Understanding with profits

15 The next two graphs show how smoothing can work (Graph 1) and how your payout could be more or less than it otherwise would be as a result (Graph 2). These graphs do not show smoothing for any actual Standard Life with profits investment. They are only to give you some idea of how smoothing works. Graph 1 Payout with no smoothing Payout with smoothing Time Graph 2 If your with profits investment stopped here your payout would be higher if we were applying smoothing at this point than if we were not. If your with profits investment stopped here your payout would be lower if we were applying smoothing at this point than if we were not. Time Understanding with profits 05

16 We could reduce the amount of smoothing or even stop applying smoothing for some or all types of payout for a time. We are more likely to reduce smoothing when payouts with smoothing are higher than payouts without smoothing. If we do this it is to protect the interests of customers who still have with profits investments. If we smooth a payout up, there is a smoothing loss for the Fund. If we smooth a payout down, there is a smoothing gain. At the close of each day, when we calculate asset shares, we take account of the gains and losses that the Fund has made as a result of smoothing on payouts made that day. If there have been large movements in asset values, there could be a big difference between the payout with and without smoothing. Our aim is that smoothed values should be no less than 80% of asset share and no more than 125% of asset share. Although smoothing can even out some of the effects of short-term changes in asset values, it won t protect you from long-term falls. If there is a big drop in asset values, and they stay low, then payout values will come down even if we are still smoothing up. On the other hand, smoothing won t stop you benefitting from long-term improvements in asset performance. 06 Understanding with profits

17 6. How we invest the money backing Stakeholder with profits investments The assets of the Stakeholder With Profits 2006 Fund include: Bonds are sometimes called fixed interest assets. Government bonds are also called gilts. equities (company shares), bonds (loans to governments or companies), and money market instruments (including cash). We might also invest in derivatives. These can include investments that give us the right, or obligation, to buy or sell assets at a particular price at a particular time. The asset shares that we use to set with profits payouts for Stakeholder plans depend on the returns the Stakeholder With Profits 2006 Fund gets. The asset mix will change over time as asset values change. We also regularly review the asset mix and may then make additional changes. In the next section we explain how and why we do this. We may make these changes by selling some types of asset and buying other types of asset. i We publish up-to-date information on the asset mix for our with profits business on our website You can also get a copy of this information by contacting us on (Call charges will vary.) Understanding with profits 07

18 How we decide the asset mix We decide the asset mix by considering the appropriate balance between risk and expected return. Our main aim is to optimise investment returns. Risks associated with investment Assets such as equities tend to have more variable values. We expect them to provide higher returns over the longer term, but there is also a greater risk that the assets will have a low value when we come to make payouts. On the other hand, assets like bonds and cash deposits generally have more stable values but over the longer term we expect them to give lower returns. So any change in the asset mix is likely to result in a change in future returns and plan payouts. Other risks associated with investment include: companies performing poorly. For example, they could: reduce dividends not make promised interest payments not make capital repayments go out of business governments not making promised interest payments or not making capital repayments. We aim to control the exposure to risk by investing in a wide variety of assets which are monitored to ensure they are of sufficient quality. We also set limits on the amount we invest in any one asset, in assets issued by any one company, and in assets that might be difficult to sell (for example because they re not traded on a recognised stock or bond market). 7. How we manage risk The UK Smoothed Managed With Profits Fund does not bear any risks, other than those normally associated with investment. 08 Understanding with profits

19 8. How we manage new business We aim to offer competitive terms for new business and for increases to premiums on existing business. We do not set any limits on the new business that can be written in the UK Smoothed Managed With Profits Fund. We have no plans to stop selling new with profits business. If we did, we would not expect this to change the way we manage existing business. 9. How we balance the interests of with profits customers and shareholders Standard Life Assurance Limited is a wholly owned subsidiary of Standard Life Aberdeen plc, which is owned by its shareholders. Shareholders are entitled to certain payments from the UK Smoothed Managed With Profits Fund. In return, they meet certain costs, as explained below. With profits customers are entitled to their asset share only, after any further adjustments for smoothing. Shareholders are entitled to all other assets in the UK Smoothed Managed With Profits Fund, including charges deducted from asset shares. In return they meet the expenses on the plans in this Fund. The Board of Standard Life Assurance Limited makes all the decisions about with profits business, although it may delegate this decision-making power to appropriate committees or persons. The With Profits Committee independently assesses the fairness to with profits customers of any significant proposed action or exercise of discretion. We publish a report to our UK with profits customers each year on our website This report sets out the Board s opinion on the fairness to with profits customers of its exercise of discretion during the previous calendar year. The With Profits Committee can add a report of its own to the Board s report. Understanding with profits 09

20 Pensions Savings Investments Insurance Find out more If you d like further information on this or any of our other products, or if there s anything more about Standard Life we can help you with, just call us on this number, or visit our website. Call us on (Mon-Fri, 9am to 5pm). Call charges may vary and calls may be recorded and/or monitored to help improve customer service. Products provided by subsidiaries of Standard Life Aberdeen plc or other specified providers. Standard Life Assurance Limited is registered in Scotland (SC286833) at Standard Life House, 30 Lothian Road, Edinburgh EH1 2DH. Standard Life Assurance Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. UWP2A Standard Life Aberdeen, images reproduced under licence. All rights reserved.