How we manage the With-Profits 90:10 fund for conventional plans

Transcription

1 How we manage the With-Profits 90:10 fund for conventional plans

2 How we manage the With-Profits 90:10 fund This guide briefly explains how the With-Profits 90:10 fund works and will help you when reviewing your investment choices. Please keep it with your plan documents. Each year we send you an update about the fund and tell you if there are any changes to our approach. This is an important document, which you should read and keep. Section 1 What does this leaflet cover? 3 Section 2 What is with-profits and how does it work? 3 Section 3 What are bonuses? 4 Section 4 What affects my plan value? 4 Section 5 What if I decide to end my plan? 7 Section 6 Where can I find out more? 7 2

3 1. What does this leaflet cover? It explains how the With-Profits 90:10 fund works and how this affects what you will get back from your plan. You can find full details of how we manage the fund in a technical guide called Principles and Practices of Financial Management (PPFM) on our website at zurich.co.uk/withprofits or you can call us if you would like us to send you a copy. We closed the fund to new policyholders at the end of 1994, although we accept investments on some plans started before then. 2. What is with-profits and how does it work? This with-profits fund shares out its profits and losses to policyholders and Zurich. Policyholders will receive 90% and Zurich 10%. This is why it is called the 90:10 fund. After taking any initial charges, we pool your money with that from other policyholders in the fund. Each policyholder owns a share of the fund and the size of your share depends on how much money you invest and when you paid it to us. This fund invests in various assets such as fixed and variable interest securities (types of loan to governments or companies), company shares, property and cash. A more detailed description is given in section 4(a). How much of the fund is invested in each will vary over time. A large part of the fund and its investment returns cover the plan benefits we have already guaranteed. We tell you each year how the fund is invested. You can also find the most recent update on our website zurich.co.uk/withprofits or you can call us for a copy. After an allowance for administration and claims costs and tax, returns are smoothed, which means we even out some of the ups and downs in performance over the time you invest. These smoothed returns are applied to your plan through a system of bonuses. The Board of Directors are responsible for managing the with-profits business in a way which is fair to investors. The principles and practices we use to make sure customers are treated fairly are set out in the PPFM. To manage the fund fairly the Board seek guidance from experienced staff from within the company, including the With-Profits Actuary and a person independent of the company. Part of the independent person s role is to review whether the fund has been run in accordance with the PPFM and whether the rights and interests of policyholders and shareholders have been appropriately addressed. A report about how we have complied with the PPFM is produced each year and is published on our website. Here you can also find the PPFM and the latest booklet showing how the fund is invested, or you can call us for a copy. 3

4 3. What are bonuses? There are two types of bonus we may add to your plan. They are: Regular bonuses. We usually set our regular bonus rates once a year, but this does not mean we will always be able to add a regular bonus. We will let you know each year what the regular bonus rate is. When a regular bonus is added it will be shown as an amount we guarantee to pay on the guarantee date. These increase the minimum amount we will pay on any guarantee date (See Section 4(e)), so will be kept at a level we believe we can support in the long term. The main things we consider in setting a regular bonus rate are: the fund s performance, the plan s guaranteed benefits, bonuses already added, our view of future investment returns after tax, the allowance for administration and claims costs. A final bonus, which we may add when your plan ends. In deciding the amount of any final bonus we will consider: the actual performance of the fund over the time you invested in it compared with the guaranteed benefits, the length of time you were invested in the fund, expected investment returns in the coming year, an appropriate share of the estate. The estate is the part of the fund not required to support the fund s expected payments, recent payout values (as we try to avoid large fluctuations from year to year). We review any final bonus rates at least once each year. They could change at any time and would only be added when your plan ends. 4. What affects my plan value? Many factors affect what you will get back from your plan. The main ones are explained below: a) Investment performance This is normally the biggest factor affecting returns and depends on where money is invested. We hold some higher-risk investments, such as shares, because we expect them, in the longer term, to give higher returns than the lower-risk investments we hold to cover the guarantees we have given. The lower-risk investments include fixed and variable interest securities, issued by governments, companies, or institutions and cash deposits that earn interest. Lower-risk investments are less subject to the extreme ups and downs in value experienced by shares. 4

5 We also seek additional income by selling some assets with an agreement to buy them back and using the proceeds to buy variable rate bonds. To reduce the risk associated with investing in shares we may buy options which give the fund some protection against falling share prices. We may pay for these options with cash, by selling options which limit the growth if share prices rise or by a combination of the two. The extent of the protection and the limitation of growth will vary over time. The option strategy adopted will be determined each year based on prevailing market conditions and investment advice received. The guarantees we have given to other with-profits investors can affect what you get back as the mix of investments has to take into account the level of guarantees within the fund. We have a different mix of assets for different groups of plans. The investment return given to each group of plans will be determined by the asset mix attributed to it. We review the choice of investments regularly to make sure the balance remains suitable for each group of plans. Which types of investment we choose to hold may be affected by market conditions and our ability to buy and sell different assets at values we believe are fair in the long-term. When we tell you each year of any changes to the regular bonus rate, we will also let you know how the fund was invested for your plan. b) Smoothing This is a special feature of with-profits investing which reduces the effect of investment fluctuations. As history shows, returns from shares and property may do well one month and fall significantly the next. Smoothing simply means we even out short-term ups and downs by sometimes holding back returns and sometimes paying out more than the fund returns. This helps prevent bonus rates having to change frequently. Our aim is to smooth maturity values (See (e) below) so that, when compared with identical plans maturing at different times, the value does not change by more than 15% from one year to the next. In the long term we can only pay out what the fund s assets achieve. We will do this by increasing guaranteed payouts when it is prudent and adding a final bonus when your share of the fund is greater than the guaranteed amount. As the fund is closed to new business and will reduce in size over time it may be necessary to change bonus rates more than once a year. 5

6 c) Our charges In calculating any regular bonus we estimate the cost of administration and claims. The fund pays these and if they turn out to be higher than we estimate this would reduce future bonuses. In 2005, to protect the fund, we changed the way it pays administration and claims costs for plans owned by individuals. The fund now pays a fixed amount to Zurich who then pays the actual costs and therefore takes any losses or profits that arise. The fixed amount increases in line with the index of UK Average Weekly Earnings each year. However, in 2015, following a review of expenses, a one-off higher than inflation increase was applied. This removes uncertainty about these costs. The fund still meets the cost of administration and claims for plans not owned by individuals, and the charges made for managing the fund s assets. d) Tax Any tax the fund pays will reduce what you get back. We will spread the burden of tax fairly throughout the fund. e) Guarantees to you We guarantee the minimum amount you will get back from your with-profits investment on death or a chosen end date. The chosen end date is also known as the maturity date or selected retirement date. For this leaflet we refer to it as the guarantee date. The guaranteed benefits only apply on the guarantee date and assume all due premiums will be paid. For this reason, any value on early cancellation may be less than the guaranteed amount. The guaranteed amount is shown as the accumulated benefit on your yearly statement. f) Long-term views on managing the fund Our aim is to fairly share out the assets of the fund including the estate. We will achieve this by including an appropriate share of the estate when deciding the amount of any final bonus. As the fund is closed, no new policyholders or premium increases are accepted, so the fund will reduce in size over time as plans end. We plan to manage this reduction in a controlled way until such time as it is no longer in customers interests to keep the fund as with-profits. At this point, we will consider consolidating all expected future bonuses into a fixed benefit. 6

7 5. What if I decide to end my plan? You may decide to end your plan on a date that is not the guarantee date. This may be because: you retire early or surrender your plan you want to move your investment to another company. If you do this, we will still give you a fair value, but we do not guarantee the minimum you will get back. What you get back will be based on the market value of your share of the fund and you could get back less than you invested. You may also lose valuable guarantees if you end your contract before the specified date. 6. Where can I find out more? You can read full details of how we manage the fund in a technical guide called Principles and Practices of Financial Management (PPFM). You can get this from our website zurich.co.uk/withprofits or you can call us. The website also includes more information about the fund and answers the questions we are often asked. If you are still unclear about investing in with-profits, you should talk to an adviser. 7

8 Please contact us or your adviser if you would like this in large print or braille, or on audio tape or CD. Zurich Assurance Ltd. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Registered in England and Wales under company number Registered Office: The Grange, Bishops Cleeve, Cheltenham, GL52 8XX. PP (05/17) RRD