HOW WE MANAGE THE PHOENIX LIFE ASSURANCE LIMITED SERP FUND A guide for policyholders with traditional with-profits policies invested in this fund The aims of this guide This guide explains how we manage this with-profits fund and what it means for your policy. Why this guide is important It gives important information about how these with-profits policies work and what you can expect back from them. Please keep this guide in a safe place with your other policy documents. PLAL_SERP_07/15
Introduction This guide covers with-profits policies like yours, which invest in the Phoenix Life Assurance Limited SERP Fund ( this fund ). This fund consists of with-profits policies such as Self Employed Retirement Plans (SERPs) (including Deferred Annuities for the Self-Employed) which were originally issued by the National Provident Institution. These policies were transferred from National Provident Life Limited to Pearl Assurance Limited in 2010. Pearl Assurance was renamed as Phoenix Life Assurance Limited on 30 September 2012. Phoenix Life Assurance Limited has a number of other with-profits funds and separate guides are available for with-profits policies which invest in these funds. We aim to answer some of the questions you might ask about what happens to the money you have paid into policies invested in this fund, and what affects the amount you may get back from your policy. The questions we aim to answer are: How does this fund work? What are my benefits? How do you decide what bonuses to pay? What if I decide to cancel my policy early? How is this fund invested? What about the shareholders? Who looks after my interests? Where can I find out more? This guide is correct at 30 September 2012. The way we manage this fund may change from time to time. We will write to you if we make changes that may have a major effect on your policy. In particular, under the terms of a scheme which received UK High Court approval on 24 September 2012, when the value of the with-profits liabilities in this fund falls below 50 million, we will convert the remaining with-profits policies into non-profit policies with guaranteed increases in benefits if appropriate. This is not expected to occur before 2025. If you would like more details about any of the information in this guide please see the section Where can I find out more? This guide does not form part of, or change, the terms or conditions of your policy. 1
How does this fund work? The payments you make into your policy ( the premiums ) go into this fund. Your money is pooled together with the premiums of the other policyholders who invest in this fund. We use this fund to pay the policy benefits to policyholders who have paid premiums into this fund. We also pay our running costs and tax from this fund. Shareholders also provide support to this fund which we describe in the section What about the shareholders? We invest this fund in a variety of different types of investments (which we describe in the section How is this fund invested?). The investment return consists of income from investments and profits and losses which increase or reduce the value of this fund. 2
What are my benefits? Benefits from with-profits policies can be divided into two main types benefits payable on retirement and those payable on earlier death. Retirement This is the date when you choose to take your pension benefits. This will normally be between your 60th and 75th birthday. The policy guarantees will apply between these dates. Earlier death This is when the person, on whose death, benefits are payable, dies before taking the retirement benefits. The benefits we pay on retirement at a date when the policy guarantees apply are: a series of payments (called an annuity or pension); or a cash sum which is available to purchase an income (annuity); or a combination of these two. Where the benefit is a cash sum, the income that can be purchased will depend on the size of the sum, your age, the type of pension you choose and the terms available at retirement for purchasing an income. The benefit we pay on death depends on the type of options you chose when you started your policy and is likely to be one of the following: a return of the premiums you have paid; or a return of the premiums you have paid with interest; or the value of your policy (see the section How do you decide what bonuses to pay?). If the death benefit you chose at outset was to receive the value of your policy on death before retirement then the amount payable on your death will be the transfer value of your policy, or, if more, the value of the benefits that would have been guaranteed had you elected to retire at that date, regardless of whether you have reached age 60 or not. To receive the full benefits you must pay all the premiums that are due. If you are currently paying regular premiums into your policy and decide to stop paying those premiums, this will affect the benefit you receive. There are more details in the section What if I decide to cancel my policy early? If you decide to transfer the value of your policy to another pension provider, before age 60 when the policy guarantees do not apply, this will affect the level of benefits that you receive. There are more details in the section What if I decide to cancel my policy early? Your policy document will tell you more about your policy benefits. The sections below give more information on guarantees and bonuses. 3
Guarantees We guarantee a minimum amount that will be paid from your policy, but the guarantee only applies for pension ages at age 60 or later. The guaranteed minimum amount is initially the guaranteed amount of pension. This guaranteed minimum amount is increased by the annual bonuses which we may have added over the life of the policy. If you decide to cancel your policy before age 60 we do not guarantee the amount that you will get back from your policy. There are more details in the section What if I decide to cancel my policy early? Annual bonuses Annual bonuses are unlikely to be added in the foreseeable future. If we do add an annual bonus, the amount that we guarantee to pay, when you retire will increase in line with the amount of bonus. Any yearly statement that we send you will include information about any annual bonuses we have added to your policy. Final bonuses Your benefits may also include a final bonus, which is payable at your retirement. We will normally review final bonuses twice a year but we may change them at any time. How we decide the annual and final bonuses is described in the section How do you decide what bonuses to pay? How do you decide what bonuses to pay? We aim to pay all policyholders their fair share of the profits this fund has earned over the time they have held their policy. When deciding what a fair share is, we consider the underlying value of specimen policies (sometimes called the asset share ), which takes into account the premiums paid and a number of other factors including the policies share of: this fund s investment performance (see the section How is this fund invested? for more details); our running costs, which include our administration costs, investment costs and commission; the tax we have to pay; charges for death benefits; charges for guarantees, if applicable; and other profits and losses (these are explained later). Taking all of this into account, we work out the underlying value of policies to help us decide what bonuses to add. 4
Annual bonuses Annual bonuses are unlikely to be added to policies for the foreseeable future. Whilst this will be reviewed from time to time it is unlikely that any further annual bonuses will be added. When deciding whether we should add annual bonuses, we look at the current financial position of this fund and estimate how we expect this to change in the future. We compare the guaranteed benefits with the underlying value of policies. We will add annual bonuses only if we are confident that the underlying value of policies will be enough to enable us to pay these bonuses at maturity, even if future investment returns or other factors become unfavourable. Final bonuses When deciding the final bonus rates, we compare the underlying value of specimen policies at retirement with the value of their guaranteed benefits. If the underlying value of the policy is more than the value of the guaranteed benefits, we will add a final bonus. However, if the value of the guaranteed benefits is more than the underlying value of the policy we will not add a final bonus. The amounts of final bonus may be affected by 'smoothing' as described below. Smoothing The underlying value of policies fluctuates with this fund s investment performance. However, we aim to avoid large differences in with-profits maturity payouts over relatively short periods of time by limiting, where possible, changes in final bonus in line with these fluctuations. This practice is known as smoothing. Smoothing means that we may pay more or less than the underlying value of policies at any point in time. Charges for guarantees No charges are currently made for the cost of guarantees. Other profits and losses Other profits and losses are not currently (or expected to be) added or charged to the underlying value of policies. The shareholders have provided support to this fund and therefore, all other profits and losses currently accrue to shareholders. Some with-profits funds have what is known as an estate. This is a pot of money built up over the years in excess of the underlying policy value that provides working capital for the fund and supports the cost of running the fund. This fund currently relies on shareholder support and therefore, does not have an estate and is not expected to ever do so. The level of shareholder support required is reviewed regularly to ensure, as far as possible that it remains adequate. The Phoenix Life Assurance Limited with-profits funds are each managed separately, as is the company s non-profit fund. In the unlikely event that one of the funds cannot afford the guaranteed benefits payable to its policyholders and there is no further support available from the shareholders, it may be necessary for the Phoenix Life Assurance Limited SERP Fund to provide some financial support to that other fund. However, support would not be provided if it resulted in this fund being unable to meet its own guarantees. In the similarly unlikely event that this fund was unable to pay the guaranteed benefits payable to its policyholders and there was no further support available from 5
the shareholders, financial support would be provided from the other with-profits funds, provided that they were still able to meet their own guarantees. What if I decide to cancel my policy early? If you are currently paying premiums into your policy but decide to stop paying those premiums before retirement then the policy will be made paid-up. Your guaranteed benefits will be reduced and we will add any future bonuses to the reduced benefit. Your policy will continue until retirement or earlier death. Alternatively, you can choose to transfer your policy s value to another pension provider. If you transfer your policy, we work out how much to pay you with the aim of being fair to both policyholders who are leaving this fund and those who are staying. We normally pay the transfer value to another pension provider and it will stay invested until you retire. However, the transfer value may be used to provide benefits allowed by the pension rules at that time. If you decide to transfer before your 60th birthday, then in many cases the transfer value will be noticeably less than the value of the guaranteed basic annuity and annual bonuses, which would have been payable from age 60. How is this fund invested? We invest this fund in a mix of assets such as property, bonds (types of loan usually issued by the Government or companies) and cash deposits. This fund may also use derivatives (for example, the right to buy or sell securities at a pre-agreed price on a specific date) as an efficient way of quickly changing the investments in this fund and / or to reduce risks. How much is put into each type of investment will change over time. The aim is to make sure that this fund can always meet its guarantees. Subject to this, the aim is to get the highest possible return, without any unnecessary risk being taken. We do not invest in company shares and, because of the high risks associated with them, are unlikely to invest in them for the foreseeable future. The majority of assets held are lower risk investments such as bonds and cash. What about the shareholders? Shareholders have provided financial support to this fund. We would use this support to provide the guaranteed policy benefits, if the Phoenix Life Assurance Limited SERP Fund is not able to do so. Currently all profits and losses in this fund that are not included in the underlying value of policies accrue to the shareholders until the support has been repaid (if at all). 6
Who looks after my interests? The Phoenix Life Assurance Limited Board makes all the decisions related to this fund. It also regularly reviews the level of risks in this fund to ensure that it remains acceptable. Our with-profits committee provides an independent review to help them. Where can I find out more? You can get a more detailed description of how we manage this fund in our Principles and Practices of Financial Management document (PPFM). You can read our PPFM on our website at www.phoenixlife.co.uk or you can ask us for a copy. Your policy document will provide more information on the guarantees and options applying to your particular policy. If you have lost your policy document, you can contact us to find out this information. Any yearly statement that we send to you will include information about annual bonuses and changes to our practices. Phoenix Life Limited No. 1016269 and Phoenix Life Assurance Limited No. 1419 are authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Both companies are registered in England and have their registered office at: 1 Wythall Green Way, Wythall, Birmingham, B47 6WG 7