Stakeholder Pension Plan from Standard Life

Transcription

1 Stakeholder Pension Plan from Standard Life (Transfer payment) KEY FEATURES Before you buy a Stakeholder Pension Plan, we want you to be sure that you know what the decision will mean for you: what this plan is, how it works, and what the risks are. This document gives you the main points about the pension plan you re buying. Please read it carefully and keep it with your Stakeholder Pension Plan documents. Its aims To offer you a way of saving for your retirement. To build up a sum of money in a tax efficient way, which will buy you a pension when you retire. Your commitment To transfer the cash value of the retirement benefits you have built up under a previous occupational pension scheme, Stakeholder pension plan, personal pension plan or pension policy into the plan. This is known as a transfer value. If you transfer from an occupational pension scheme with defined benefits, you cannot cancel or, normally, return to your previous scheme. You should consider the transfer to be a commitment until your chosen retirement date. To let the plan build up until you choose to take a pension, and then to use it to buy your pension. You cannot cash in this plan at any time. Risk factors What you get back when you retire isn t guaranteed. Your pension may be lower than illustrated. This could happen for a number of reasons, for example if: the performance of the fund(s) you have chosen is lower than illustrated interest rates when you retire are lower than illustrated you start taking your pension before your chosen retirement date tax law or tax reliefs change our charges increase in the future. In addition, for with profits investments, your pension may be lower than illustrated because of the application of any smoothing. Please see the enclosed With Profits Summary (WP82) for details. 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 investment can fall as well as rise and you may get back less than you pay in. PAGE 1 OF 8

2 KEY FEATURES If you cancel the transfer payment during the 30 day cancellation period, you may get back less than you've paid in. This is because we may deduct from the amount you get back any fall in the investment value during this period. There is no guarantee that what you get back will be greater than what you would have received had you remained in your previous scheme or policy. If any part of your transfer value relates to a period when you were contracted-out, you can t start taking your contracted-out pension before age 60. A usual feature of investing in our Stakeholder With Profits Fund is that we apply smoothing to even out the ups and downs of investment performance. We may reduce or remove smoothing in certain circumstances which means that your benefits could be lower than they otherwise would have been. For more information about investing in our Stakeholder With Profits Fund, please read the enclosed With Profits Summary (WP82). For as long as Standard Life is a mutual company, with profits policyholders may share in the performance (profits and losses) of the Standard Life group. We aim to make profits that we may use to make the payout higher than it would otherwise have been. There is, however, the possibility that losses could occur which could result in lower payouts. In the past, for Stakeholder With Profits investments, we have applied discretionary adjustments, known as benefits of mutuality (please see 'What are the discretionary adjustments?'). However, in October 2004 we announced that we intend to reduce benefits of mutuality payments and that we expect that they will be phased out over the two years from that date. Questions and answers What is a Stakeholder Pension Plan (Transfer payment)? It s a savings plan that lets you save for your retirement in a tax efficient way. You can transfer the cash value of the retirement benefits you have built up under a previous occupational pension scheme, Stakeholder pension plan, personal pension plan or pension policy into the plan. This is known as a transfer value. If you have previously been contracted-out of the State Earnings Related Pension Scheme (SERPS) or its replacement, the State Second Pension (S2P), you can also transfer an amount relating to guaranteed minimum pension, section 9(2B) rights or protected rights. This is known as a protected rights transfer value and will be used to provide you with an income which replaces some or all of your additional State pension. Stakeholder plans were introduced by the Government to encourage people to save for their retirement. They have been available since 6 April Am I eligible? You are eligible for this plan as long as you re under 75 and have a transfer value from a previous scheme or policy. However, if the transferring scheme is an occupational pension scheme, you are not eligible if you are receiving benefits from that scheme. How flexible is it? 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. See Can I pay more into the plan? later in this document. PAGE 2 OF 8

3 KEY FEATURES What might I get when I want to retire? Your final plan value will depend on: how much is paid in how long the payments are invested for the performance of the fund(s) you have chosen our charges (see What are the charges? ) in addition, for with profits investments, the way we smooth returns and any discretionary adjustments (please see 'What are the discretionary adjustments?'), subject to any applicable guarantees on charges. Your plan will be used to buy a pension, which is an income for the rest of your life, from us or another authorised pension provider. The amount of pension will depend on a number of factors at the time, for example: interest rates your age and state of health life expectancy rates the type of pension you choose. What choices will I have when I retire? You can use all of your final plan value to buy a pension, which will be taxable. Or you can normally take up to a quarter of the plan value as a tax-free sum and a smaller, taxable pension. The scheme you transfer from will tell us if there are any restrictions on how the plan value may be used. You can choose a pension that stays the same each year, or one that s index-linked or goes up by a fixed percentage each year. You can choose a smaller pension for yourself so that you also provide a pension for your husband, wife or other dependant(s) after you die. You can start taking a pension at any time between the ages of 50 and 75, including while you re still working. You must 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 50 only if you re in severe ill health, or if the Inland Revenue has approved this for your job. If any part of your transfer payment includes protected rights, you won t be able to take your pension from your protected rights fund until you re 60. You can t take any of it as a lump sum. You can buy your taxable pension from any authorised pension provider. Can I pay more into the plan? You can pay regular or single payments into the plan. You can find more information on this option in our separate Stakeholder Pension Plan Key Features Document (SPP17). 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. There s no guarantee that doing so will increase your total pension. PAGE 3 OF 8

4 KEY FEATURES What about tax? The funds you invest in will grow free of UK Capital Gains Tax. You can normally take some of your fund as a tax-free lump sum when you convert the plan into an pension. 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. Tax and legislation may change. The value of tax relief will depend on your financial circumstances and may change in the future. The information we ve given here is based on our understanding of law and HM Revenue & Customs practice when we published this document. Where are the payments invested? 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. We offer Lifestyle profiles, a range of investment-linked pension funds and a with profits fund for you to choose from. If you invest in a Lifestyle profile (also known as a Pension Fund Investment Strategy or "PFIS" profile) and you wish to combine this with another investment option, you can only combine it with the Stakeholder With Profits Fund. You cannot combine it with any other investment fund or Lifestyle profile. If you are starting a Stakeholder Pension Plan and do not specify an investment choice, we will invest all payments in the Stakeholder Balanced Managed Lifestyle profile. If you are already making payments into this Stakeholder Pension Plan and do not specify an investment choice, your transfer payment will be invested in line with your current investment instructions, unless: you are currently invested 100% in the Stakeholder With Profits Fund, OR you are currently invested in a combination of the Stakeholder Balanced Managed Lifestyle profile and the Stakeholder With Profits Fund. If either applies, your transfer payment will be invested in the Stakeholder Balanced Managed Lifestyle profile. Lifestyle profiles allow us to automatically switch your investments into lower-risk funds as you get closer to retirement. The Stakeholder Balanced Managed Lifestyle profile initially invests in the Stakeholder Managed Fund. Eight years before your retirement date, the profile starts switching the value of your pension into a combination of the Stakeholder Managed Fund, Stakeholder Cautious Managed Fund, Stakeholder Protection Fund and the Stakeholder Sterling Fund. For more information on how this works, please ask your financial adviser or nearest Standard Life office for our 'Stakeholder Pension Plan Lifestyle profiles' leaflet (GSPP41). For information on the funds within the Lifestyle profiles, please ask for a copy of 'Your Pension Investment Choices' (SPP5). You can switch your investments in and out of the funds on offer to change the mix of investments. You can only invest in 12 of our funds at any time. The maximum number of different funds you can invest in during the term of your plan is 20. 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. The assets backing the Stakeholder With Profits Fund are a mix of investments such as company shares, property holdings, bonds (which are loans to governments or companies) and cash deposits. Quarterly information on the asset mixes for the different classes of with profits investment is published on our website, PAGE 4 OF 8

5 KEY FEATURES The Stakeholder With Profits Fund is split into units. If you choose with profits, we allocate you a number of units that represents your investment in the fund. The value of your pension fund at your chosen retirement date depends on the number of units you have in the Stakeholder With Profits Fund and the unit price that applies at that time. The unit price is based on the value of the assets backing the Stakeholder With Profits Fund, after allowing for any smoothing. We aim to produce smoothed investment returns for policyholders invested in the Stakeholder With Profits Fund. The value of an investment in this fund can fall as well as rise. In certain circumstances we may reduce or remove smoothing to maintain a fair level of future payouts to everyone still invested in the fund. For more information about our funds, please ask your adviser or your nearest Standard Life office for our leaflet Your pension investment choices (SPP5). For further information on our Stakeholder With Profits Fund please refer to our With Profits Summary (WP82). What are the charges? 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. If your fund is valued at 500 throughout the year, this means we deduct 5 that year. If your fund is valued at 7500 throughout the year, we will deduct 75 that year. If your fund exceeds 25,000 we reduce the effect of the yearly charge by adding extra units in your fund to the value of 0.1% of your fund each year. If your fund exceeds 50,000 we add extra units to the value of 0.2% of your fund each year. The figures are current values and could change in the future. 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 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. We can increase the charges we make. We may do so in the future if our costs are higher than expected. This might happen if, for example: tax rules change our staff or overhead costs are more then we expected our income from charges is less than we expected. However, as the Government has set a maximum charge that can apply to Stakeholder Pensions, we will not increase the charges on your plan above this amount. We may also alter the discretionary deductions we take from our funds (please see What are the discretionary adjustments? What are the discretionary adjustments? We may make discretionary adjustments to reflect costs incurred in managing a fund. For example, if the fund manager experiences a significant number of investors leaving the fund and needs to apply an adjustment to reflect the costs of selling assets. PAGE 5 OF 8

6 KEY FEATURES For with profits investments only: We may make discretionary adjustments in respect of any share in the financial results (profits and losses) of the Standard Life group. Any such adjustment would be made as a reduction or increase in the fund management charge, subject to any applicable guarantees on charges. What happens to the plan if I die before I retire? We ll pay the plan value at the date of your death. We ll pay the amount due in a lump sum unless part of your plan has to be used to buy a pension for your husband, wife or other dependants. This could happen if: you ve made a transfer payment into your plan, directly or indirectly, from a company pension scheme, or you have a separate fund because you ve contracted-out of S2P. If you ve set up your plan under trust, we ll pay the lump sum to the people you ve named as trustees. If you haven t, we ll decide who to pay the lump sum to. We ll take into account your circumstances when you die and anyone you ve said you want to receive the money. Can I transfer my plan? You can transfer your plan to another pension plan 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. Please read the enclosed With Profits Summary (WP82) for more information. Can I change my mind? If you're transferring from a 'final salary' company scheme, you can't normally cancel the transfer or return to the original scheme. For any other pension transfer you have a legal right to cancel the transfer if you change your mind. When we accept your application we'll send you a Cancellation Notice that confirms the actual steps that must be taken in order to cancel the transfer. The Cancellation Notice confirms that 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 Acceptance Notice. During this period, if you decide you want to cancel, you should send your cancellation instruction, including confirmation that the original scheme will accept the funds back, to the address provided in the Cancellation Notice. We'll then return the transfer payment to the original scheme. Please make sure that you include your plan number in any correspondence with us. 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. If you 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 during this period. PAGE 6 OF 8

7 KEY FEATURES How will I know how my plan is performing? We will send you a yearly statement to show how your plan is doing. You can check our website for details of investment-linked fund prices. You can also get an up-to-date valuation at any time by calling our customer helpline. 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, you can phone us, or send a fax or , or you can write to us. We may monitor calls to improve our service. Phone: , Monday to Friday 8am pm Fax: individual_ppp@standardlife.com (We can t guarantee that we ll receive any sent, or that it hasn t been tampered with or intercepted during transmission. You may prefer to contact us by phone or fax, or in writing.) Write to us at: The Standard Life Assurance Company 1 Conference Square Edinburgh EH2 7RA United Kingdom 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 the previous page. If you aren t satisfied with our response, you may be able to complain to: The Financial Ombudsman Service South Quay Plaza 183 Marsh Wall London E14 9SR Phone: Fax: enquiries@financial-ombudsman.org.uk Website: Complaining to the Ombudsman won t affect your legal rights. PAGE 7 OF 8

8 KEY FEATURES Terms and conditions Law 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 (SPP62). 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. The law of Scotland will decide any legal dispute. The English language will be used in all documents and future correspondence. Compensation Where you receive advice from a qualified financial adviser, they should recommend a product that is suitable for you. You have a legal right to compensation if, at any time, it is shown that you have bought a recommended product that was not suitable for your needs at that time. The Financial Services Compensation Scheme has been set up to deal with compensation if firms are unable, or likely to be unable, to meet claims against them. For more information please contact us on The amount of compensation available from the Financial Services Compensation Scheme (FSCS) depends on the type of business and the circumstances of the claim. Most types of investment business are covered for 100% of the first 30,000 and 90% of the next 20,000, so the maximum compensation is 48,000. Further information is available from the FSCS. About Standard Life The Standard Life Assurance Company's ("Standard Life's") product range includes life assurance, pensions and investments. Standard Life is on the Financial Services Authority Register. The registration number is Standard Life is a mutual company. However, on 31 March 2004 it was announced that the Standard Life Board had concluded that, in principle, proceeding towards a demutualisation of the Company was in the best interests of the Company and its policyholders. The current timetable envisaged is that a proposal will be put to members by the 2006 Annual General Meeting for implementation as soon as practicable thereafter. Standard Life has been assessed as having attained the standards under the Raising Standards Quality Mark Scheme. The Standard Life Assurance Company* is a mutual company registered in Scotland (no SZ4) Head Office Standard Life House 30 Lothian Road Edinburgh EH1 2DH Tel (0131) Standard Life may record and monitor telephone calls to help improve customer service. The Standard Life group includes Standard Life Pension Funds Limited* SLTM Limited* Standard Life Investments (Mutual Funds) Limited* *Authorised and regulated by the Financial Services Authority SPP17b M 2005 Standard Life PAGE 8 OF 8

9 ADDENDUM TO KEY FEATURES This addendum contains important information and forms part of the Key Features Document. 'About Standard Life' - Further Information The About Standard Life section of this Key Features Document tells you about an announcement made on 31 March This said that the Board of Standard Life had concluded that, in principle, proceeding towards a demutualisation of the Company was in the best interests of the Company and its policyholders. There has now been a further announcement, as follows: On 17 October 2005 the Standard Life Board confirmed that it intends to recommend to members that the Company should demutualise and list on the London Stock Exchange, subject to satisfactory completion of all legal, regulatory and other processes. The Board continues to believe that demutualisation and flotation is the best way forward and in the best interests of the Company, its members and customers. It is expected that a proposal will be put to members ahead of a Special General Meeting in May or June 2006 for implementation as soon as practicable thereafter. References to 'With Profits Summary' and 'With Profits Guide' We enclose a booklet called Understanding With Profits. This booklet gives you important information about how Standard Life with profits investments work for this type of plan. It replaces our With Profits Summary and, from 31 December 2005, our With Profits Guide. Any references in Key Features to With Profits Summary or With Profits Guide should be taken as references to Understanding With Profits. The Standard Life Assurance Company* is a mutual company registered in Scotland (no SZ4) Head Office Standard Life House 30 Lothian Road Edinburgh EH1 2DH Tel (0131) Standard Life may record and monitor telephone calls to help improve customer service. The Standard Life group includes Standard Life Pension Funds Limited* SLTM Limited* Standard Life Investments (Mutual Funds) Limited* *Authorised and regulated by the Financial Services Authority GEN M 2005 Standard Life PAGE 1 OF 1

10 Understanding With Profits 31 DECEMBER 2005 This booklet gives you important information about how your Standard Life Stakeholder with profits investment works. We hope you find this booklet useful. Please keep it in a safe place in case you want to refer to it later. 1 of 12

11 We aim to treat all planholders fairly. Your with profits fair payout takes account of the premiums you pay us, the returns we get on the assets we invest in, our deductions, and any discretionary adjustments (up or down) that we make. The amount of your fair payout may also depend on whether you stay in with profits to the retirement date set at the start of your plan. We use our discretion for the benefit of our current and future with profits planholders. We invest in a wide range of assets, including equities (company shares), property and bonds (loans to governments or companies). These types of assets can rise or fall in value. When we set fair payouts we may smooth out some of the effects of short-term changes in asset values. We may hold a different mixes of assets to back different classes of with profits plan. 2 of 12

12 Contents 1. Introduction 4 What are Principles and Practices of financial management? 2. What is a with profits investment? 5 What is a Stakeholder plan? What are the bonuses for Stakeholder plans? What are your guarantees? What happens when you retire? What happens if you stop paying premiums? What happens if you leave with profits? 3. How do we set fair payouts? 6 What is an asset share? What is smoothing? 4. What expenses do we incur? 7 5. How we invest the money backing with profits plans 7 How we decide the asset mix How we manage the risks associated with investment 6. How we manage business risk 9 7. What is the inherited estate and how do we use it? How we manage new business If you need to contact us 11 3 OF 12

13 1. Introduction This booklet tells you how we manage Stakeholder with profits business only. Other types of with profits plans that Standard Life operates in the UK are covered in separate Understanding With Profits booklets. We set out in more detail how we manage all our UK with profits business in a separate publication called Principles and Practices of Financial Management for UK With Profits Business (PPFM). This booklet is a summary of the main points from our PPFM relevant to your plan. If you require a fuller, more technical description of how we manage our UK with profits business you should refer to our PPFM. This Understanding With Profits booklet is intended only to give a high-level and simplified description of how we manage our with profits business. It does not in any way: vary the existing terms and conditions of your plan; 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 and our PPFM sets out in more detail how we manage our UK with profits business. Our website will always have the most up-to-date version of all Understanding With Profits booklets and of our PPFM. You can also get copies by contacting us on What are Principles and Practices of financial management? We manage our with profits business according to a set of Principles and associated Practices that are set out in our PPFM. Principles are high-level statements of the standards we apply. Practices are more detailed statements of our current approach to managing with profits business. We don t expect to change our Principles very often. We will tell you at least three months in advance of any changes to our Principles. However, Practices change more often, for example to respond to changes in the business or economic environment, or to protect the interests of with profits planholders. If we make any changes to our PPFM that materially change this booklet, we will send you a new booklet no later than the next time we send you a yearly statement. We will also send you a booklet if we propose to change any of the Principles we apply in managing our with profits business. If members accept our proposal to demutualise, a new PPFM will be published to reflect the new company structure after demutualisation. We would then send you a new Understanding With Profits booklet no later than the next time we send you a yearly statement after demutualisation. 4 of 12

14 2. What is a with profits investment? Your with profits investment is the part of your plan (and it could be the whole of your plan) for which we provide a share in the performance of a relevant with profits fund. The relevant with profits fund is the mix of assets that we hold to back the Stakeholder With Profits Fund. In addition some smoothing may apply. We give more detail about smoothing and which assets we invest in later in this booklet. What is a Stakeholder plan? A Stakeholder plan is a type of pension plan for which the Government sets maximum charges. We hold the relevant fund separately from our other investments and can only use it for Stakeholder with profits investors. We allocate a number of units to your plan for each premium you pay. The with profits units allocated represent your with profits investment. The value of your units reflects, amongst other things, investment performance and any smoothing please see section 3 How do we set fair payouts?. The value of your units may go down as well as up. What are the bonuses for Stakeholder plans? We do not pay regular or final bonuses on Stakeholder plans. The investment performance is reflected in the value of your units. However, we may credit your plan with bonus units to return some of our charges to you. We may do this if your Stakeholder with profits investment is relatively large, which makes it proportionately cheaper for us to run. We may also reduce the charges on the Stakeholder With Profits Fund to provide a share in the profits of the Standard Life group please see section 6 How we manage business risk. We have discretion over the crediting of bonus units and reductions in charges. What are your guarantees? We do not provide any investment performance guarantee. The value of your units may go down as well as up. We guarantee that we will not charge you more than the amount allowed under Stakeholder regulations. What happens when you retire? You will receive a fair payout please see section 3 How do we set fair payouts?. Your fair payout is your unit value. 5 of 12

15 What happens if you stop paying premiums? If you stop paying premiums, there will be fewer units allocated at your retirement date than if you had paid premiums throughout the term of your plan. The value of your units, in respect of premiums paid, is unaffected if you stop paying premiums. What happens if you leave with profits? You will receive a fair payout please see section 3 How do we set fair payouts?. Your fair payout is your unit value. 3. How do we set fair payouts? We explained earlier that you will receive a fair payout when your with profits investment ends. We use asset shares as a tool to help set fair payouts. The asset share represents the underlying value of the plan; the fair payout may be more or less than this. We describe below what an asset share is and how we may make further adjustments before setting fair payouts. Your fair payout is the asset share, with any further adjustments, for your plan. This is directly reflected in your unit value. Your fair payout may depend on why your with profits investment is ending. What is an asset share? Briefly, the asset share of a with profits policy is the accumulation at the relevant returns of the premiums paid, less the deductions we make. The relevant returns are the investment returns on the assets that we hold to back Stakeholder with profits plans, adjusted for the gains and losses due to smoothing payouts. We may hold different mixes of asset for different classes of policy. Asset value, and so asset shares, may go down as well as up. The deductions we make are normally for such things as our expenses and a contribution to Standard Life s capital. These deductions correspond to charges under Stakeholder plans not invested in with profits. If any amounts are withdrawn from the with profits policy, the asset share is reduced. We may adjust the deductions, down or up, to provide a share in the financial performance of the Standard Life group. We have discretion over the size of any adjustments, however, the deductions that we make are subject to the maximum allowable under Stakeholder regulations. 6 of 12

16 Before we set fair payouts, we may make further discretionary adjustments: up or down for any smoothing please see What is smoothing? below; up for any share in the profits of the Standard Life group; and up for any other distribution of excess capital forming part of the inherited estate. Any adjustments we may make, whether up or down, may differ according to why the with profits investment is ending. For example we may concentrate our smoothing on retirements at the selected pension age. We tell you more about the assets we hold to back with profits plans, sharing in the financial performance of the Standard Life group and the use of the inherited estate in sections 5, 6 and 7 respectively. What is smoothing? We hold a wide range of assets to back with profits plans. The return on these assets will vary over time. One year the assets could go up in value, but the next they could go down. We may even out some of the fluctuations in investment returns and reduce the immediate impact of short-term changes in asset values on payouts under our with profits plans. Smoothing is the name we give this process. We aim to smooth for payouts on retirement at the selected pension age and we may smooth for other types of payout. We aim to operate smoothing to be neutral over time in its effect. We aim to make payouts between 80% and 125% of asset share. We may reduce the amount of smoothing or apply no smoothing at all. An example of when we may do this is if there has been a rapid fall in the value of assets and we expect there to be a significant amount of money leaving with profits. 4. What expenses do we incur? Like any other business Standard Life incurs expenses. These include the salaries of our staff, the cost of maintaining our head office and branches, investment costs, any commission paid to intermediaries and any other ongoing costs. For Stakeholder plans we recover a fair share of these expenses when determining fair payouts. Any balance of expenses that is not recovered in this way is met by the inherited estate please see section 7 What is the inherited estate and how do we use it?. 5. How we invest the money backing with profits plans We invest in a mix of assets including equities (company shares), property, bonds (which are loans to governments or companies) and cash deposits. Equity and property assets generally have more variable values, but over the longer term we expect them to provide higher returns. Bonds and cash deposits generally have more stable values, but over the longer term we expect them to provide lower returns. 7 OF 12

17 We may also invest in derivatives such as investments that provide rights or obligations to buy or sell assets at a particular price and time as an efficient way of managing our with profits business. We hold some assets that we would not normally sell. These include subsidiary companies, such as Standard Life Bank Limited, and properties that we own and occupy. These assets usually form part of our inherited estate (please see section 7 What is the inherited estate and how do we use it?), and don t normally back with profits plans. How we decide the asset mix We regularly review the asset mix that backs each class of with profits business. We seek to generate competitive investment returns. The asset mix may not be the same for all classes of with profits plan. We decide what asset mix to hold by considering the extent of guarantees for each class of with profits plan, and the appropriate balance between risk and expected return. However, we generally expect lower-risk assets to give lower returns over the longer term. Our main restriction on investment strategy is maintaining the Company s financial strength at a level the Board decides is appropriate whilst meeting our obligations to planholders. The investment return credited to a particular class of with profits plan will reflect the investment return on the mix of assets that backs that class of business. How we manage the risks associated with investment Certain risks are associated with investment, such as companies performing poorly and reducing dividends or borrowers not making promised interest and capital repayments, or our having to sell assets to meet payouts when prices are depressed. We aim to control our exposure to investment risks by investing in assets of sufficient quality and variety. For example we set limits on the amount we invest in any one asset, in assets issued by any one company, and in assets that are not traded on a recognised stock or bond market (and so may be difficult to sell). There may be times when we need to reduce significantly the proportion of assets invested in higher-risk assets such as equities and property, for example where our financial strength is reduced following a sudden or sustained fall in asset values. We publish quarterly information on the asset mix for different classes of with profits business on our website. Alternatively please contact us on for a copy of this information. 8 of 12

18 6. How we manage business risk Running our business inevitably involves some risks. The largest risk is that the investment return on with profits assets is not enough to meet guaranteed minimum payouts for plans that have investment performance guarantees and to maintain our financial strength. We manage this risk by varying the mix of assets that backs with profits plans please see section 5 How we invest the money backing with profits plans. We also manage this risk through the deductions we make from asset shares (for plans which have investment performance guarantees) for the cost of guarantees. We normally review these deductions once a year, but we may do so more frequently. We will increase these deductions if our assessment of the cost of guarantees increases significantly. This assessment will vary because of, for example, changes in: asset values; asset mixes; and regular bonus. Other risks include the costs of providing life cover or sickness benefits being higher than we expected, and expenses being higher than we expected. We may manage these risks through underwriting (for example asking health questions on proposal forms) and reinsurance (passing part of the risk to another insurance company), and through budgetary controls. Our Board carefully considers the significant risks associated with any particular business activity before we undertake it. We continue to take on additional business risks where this is likely to provide long-term returns for the benefit of current and future planholders; for example by writing new with profits and other business. We do not currently apply any general limit on the amount of new business or other types of business risk we accept. Capital is needed to support any business activity. We decide whether to undertake a business activity by comparing: the expected profitability of the activity; with the expected benefits to our with profits planholders of other uses of that capital. Standard Life is currently a mutual company with no shareholders. For so long as it remains so, our with profits planholders may share in the financial performance of the Standard Life group including profits and losses arising from business risks. This is in addition to the investment return on the assets backing with profits plans. These business risks include writing non-with profits business, investing in subsidiaries, and differences between our actual expenses and the expenses we charge to plans. When determining payouts to planholders any adjustment for profits and losses arising from business risks is wholly at the Board s discretion. This would reflect, for example, the extent to which the plans have supported the risks taken. 9 OF 12

19 On 17 October 2005 the Standard Life Board confirmed that it intends to recommend to members that the Company should demutualise and list on the London Stock Exchange, subject to satisfactory completion of all legal, regulatory and other processes. The Board continues to believe that demutualisation and flotation is the best way forward and in the best interests of the Company, its members and customers. It is expected that a proposal will be put to members ahead of a Special General Meeting in May or June 2006 for implementation as soon as practicable thereafter. 7. What is the inherited estate and how do we use it? Our inherited estate is a pool of assets that provides working capital for our with profits business. We may use this pool of assets in any way that we feel is in the best long-term interests of our current and future with profits planholders. For example we may use our inherited estate to: support the development and growth of the Standard Life group, for instance the sale of new business, and investment in subsidiaries, such as Standard Life Bank Limited; meet expenses that are not recovered when determining fair payouts; allow greater choice over the proportion of higher-risk but potentially higher-yielding investments, such as equities and properties, backing with profits plans; and meet some of any shortfall of the value of the assets backing with profits plans from their guaranteed benefits. The size and uses of our inherited estate are regularly monitored by the Board. If our inherited estate becomes too small we may need to, for example, increase the deductions we make from asset shares or reduce the proportion of equities and properties backing with profits plans. If our inherited estate is ever judged to be greater than required then we may, for example, use part of it to increase payout values or increase the proportion of equities and properties backing with profits plans. The Board would balance the interests of existing and potential future with profits planholders when reviewing all the options open to us. 10 of 12

20 8. How we manage new business We aim to grow our business profitably by selling new with profits and other plans in a controlled way that maintains our financial strength at an appropriate level. This will include expansion into new areas and markets. We monitor our new business to ensure that overall the mix of business remains well balanced between with profits and other plans. We have no plans to stop selling new with profits plans. If we do ever stop selling them, we will notify you and will write to explain how our with profits business will then be managed. Any subsequent distribution of the inherited estate will be designed to treat planholders fairly and will be approved by the Board, in accordance with Standard Life s Regulations. 9. If you need to contact us You can contact us through our website Or by telephone on OF 12

21 Standard Life Standard Life House 30 Lothian Road Edinburgh EH1 2DH Telephone (0131) Standard Life may record and monitor telephone calls to help improve customer service. The Standard Life Assurance Company* is a mutual company registered in Scotland (no SZ4) Head Office Standard Life House 30 Lothian Road Edinburgh EH1 2DH The Standard Life group includes Standard Life Pension Funds Limited* SLTM Limited* Standard Life Investments (Mutual Funds) Limited* *Authorised and regulated by the Financial Services Authority UWP M 2005 Standard Life (images reproduced under licence) 12 of 12