Annual Benefit Statement FAQs

You should be receiving your annual 2007 Benefit Statement letting you know the bonuses which have been added to your plans (which are higher than last year) and the premiums you pay.

We should be sending the statement out any time from the end of February until the middle of March. Please let us know if you have not received your statement by then. This page and the documents in the Additional Information box attempt to answer some of the frequently asked questions which we receive at this time of year.

I often see High Street Banks advertising savings rates of 6%(Gross); why does my MPFS long term endowment bonus rate seem so much lower?

MPFS With Profit Savings Plans are not the same as Bank and Building Society savings accounts. The rates are very difficult to compare. But I will have a go at explaining some of the major differences.

The most important thing to note is that our bonuses get calculated from (and added to) your Sum Assured, not just to the amount of money you pay in. Under a conventional policy your Sum Assured is higher than the total premiums you have paid in until you near the end of your policy term. (The accumulating policies - ISAs and Lump Sums - are more similiar to bank accounts - see below.)

To take an example if you were pay £10 per month into an MPFS 10 Year Tax Exempt Endowment we would give you a Sum Assured of £1120. Therefore in year 1 your 2.7% bonus equates to a guaranteed increase in benefit (at maturity or death) of £30. (The annual bonuses are compounded, i.e. in year 2 you will get a bonus calculated from £1120+£30.)

In contrast to this a year of paying £10 per month into 6% High Street Bank savings account would result in an annual interest of only about £3.

But there is more... most of our policies have tax advantages. A higher rate tax payer would be subject to full 40% tax on the interest from the High Street Bank 6% savings account but with a qualifying MPFS policy, we pay tax at the basic rate and there is no tax for you to pay.

However this may still not be the complete picture. The bonus rate quoted on your bonus statement reflects the yearly growth of the MPFS funds. At the time of encashment you may also be entitled to a final bonus which reflects additional investment profits which are not already distributed by way of an annual bonus. A final bonus is applied to the Sum Assured + all annual bonuses. We are currenty paying final bonuses on all of our plans including accumulating policies, subject to a minimum term of investment. (See Current Bonus Rates for more details.)

But in fairness the 6% savings account may have certain advantages. It is likely to be an instant access account whereas MPFS plans should be treated as medium to long term investments. The full benefits from the MPFS accounts can only be realised at maturity (or death) payout but the tax benefits still apply for some early surrenders.

This sounds complicated; are you just trying to confuse the members?

No, we are just selling a product which is different to a High Street Bank savings account.

The Conventional With-Profits policy is an Endowment Savings Plan, which means that as well as a payout at maturity there is also life assurance 'built in' - this gives us a better tax position. But being a mutual life insurer with no shareholders, we pass on our savings to you.

The death benefit is the Sum Assured figure, plus bonuses - so your estate wouldn't just get back what you had paid in.

We have published the CFPPFM which describes, in a 'Customer Friendly' way, how we calculate our bonus rates. The Association of British Insurers also publishes useful information. We are happy to discuss anything about our plans with you; please get in touch.

Why is my ISA bonus rate only 4.2% when I see Cash ISAs with rates of 6% being advertised by the high street banks?

The 4.2% bonus is an annual bonus applied to your ISA investment. This annual bonus is a reflection of the growth of the Society's investments over the year. At the time of encashment you may also be entitled to a final bonus which reflects additional investment profits which are not already distributed by way of an annual bonus. We are currently paying final bonuses on policies which have been running for 3 or more years. These final bonuses depend on current market conditions. So far this year we have been paying a final bonus rate of 14% on a ISA taken out 5 years ago [Correct as of 1/3/2008].

Taking the final bonus into account on an ISA taken out 5 years ago means that the policy will have grown at a rate equivalent to an average of 6.6% per annum. In general the longer you leave the policy running the higher the final bonus.

What about my With Profit Bond or With Profit Plan, could these be subject to a final bonus like the ISA?

Yes. The annual bonus is a reflection of the growth of the Society's investments over the year. At the time of encashment you may also be entitled to a final bonus which reflects additional investment profits which are not already distributed by way of an annual bonus. We are currently paying final bonuses on policies which have been running for 3 or more years. These final bonuses depend on current market conditions. So far this year we have been paying a final bonus rate of 14% on a Bond taken out 5 years ago [Correct as of 1/3/2008].

In general the longer you leave the policy running the higher the final bonus. (On 1/3/2008 we were paying a final bonus of 21% & 39% on a bond taken out 10 & 13 years ago respectively.)

Why are there different bonus rates for different tables?

For some tables, the With-Profit Bond and the ISA, the Benefit or Sum Assured is based on what you have already paid us. For most tables, however, the Sum Assured is based on what you will pay us over the term of the plan - and, for old series tables, it capitalises some of the investment income we expect. Therefore, the profits we earn on each type of table are different.

How do you calculate bonuses?

The bonus we add each year is a consistent way of distributing a projected pre-tax investment return of, currently, about 5%. On average, we earn more than this - and the excess is distributed as a final bonus at maturity or on encashment. We also reflect any return of our capital to members in the final bonus.

When do you pay a final bonus?

If you pay us a lump sum, including any ISA contributions, then a final bonus is payable on or after the third anniversary. Regular contribution contracts attract a final bonus from the fifth anniversary onwards. Final bonuses are not only included in maturity and death claims - they are also included in our calculation of surrender values.

Can the final bonus be negative?

We need to reflect our investment return, even in bad times, so we reserve our rights to adjust surrender values - not maturity values or death claims. In particular, lump sum investments held for less than 10 years could be adjusted downwards by a 'market value reduction' - effectively a negative final bonus.

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