Questions and Answers

What are the MPFS 5 Year and Flexible Savings Plans?

The 5 Year Plan is a conventional with-profits endowment plan with a fixed term of 5 years.

The Flexible Savings Plan is a series of regular premium with-profit bonds; all premiums paid during a calendar year are paid into one bond then a new bond starts each January for your continuing premium whilst the previous years' bonds continue to attract bonuses.

Who can take out MPFS 5 Year and Flexible Savings Plans?

To invest with us you must work or have worked in the police service in London - or be the partner or close relative of someone who does. The 5 Year Plan has to be taken out before age 55 (60 for non-smokers), but you can start a Flexible Savings Plan at any age.

How flexible are they?

Under the 5 Year Plan, once it has started, the premium and the 5-year term are fixed and cannot be altered. However, if you stop paying the premium the plan will cease and a "surrender value" will become payable.

The Flexible Savings Plan has no set maturity date so you can stop paying premiums at any time and cash-in your plan, or leave the money to continue to grow, or restart paying premiums later. You can vary your premiums at any time but not reduce them below the minimum (£20 per month) unless you stop paying completely.

When can I take money out?

When the 5 Year Plan reaches the end of the 5 year period you will receive the maturity value; the Flexible Savings Plan on the other hand does not mature so you will need to contact us when you decide to cash in your plan.

You can cash in either plan at any time for a 'surrender value'. You can only cash in a 5 Year Plan completely, or individual certificate numbers under the Flexible Savings Plan (representing a single year's contributions) - we will not permit part surrenders. Where you are investing more than £50 per month in the 5 Year Plan, we recommend you split your plan into 2 or more - which gives you more freedom if you need to cash in early.

We need to allow for investment performance, so any illustrated surrender values are not guaranteed. Under the 5 Year Plan, the surrender value will never exceed what you have paid in (prior to maturity) and could be less in the early years.

On taking money out of either plan there may be tax implications.

How do I withdraw money when I need it?

All you have to do is send or fax us a signed letter detailing your request and giving details of the bank or building society account where we should pay your money. Requests received by Friday are normally credited to your account the following Wednesday. Where there is an intervening public holiday, different arrangements apply. Please contact us for more details.

How does the 5 Year Savings Plan work?

• You invest a regular monthly premium (min £10) with the Society.
• These are life insurance plans and they have a death benefit, the Sum Assured.
• The Sum Assured is £560 for each £10 monthly premium.
• We have no maximum premium, but will need to underwrite the life insurance - which may impose some restrictions.
• You must be under 55 when you take out the plan, or under 60 if you are a non-smoker. However, on request we will waive these limits, in which case the death benefit will be limited to a return of premiums.
• Your money is invested in our with-profits fund.
• At the end of each calendar year, we add a bonus to the Sum Assured and send you a bonus notice.
• Once added, that bonus is a permanent addition to your investment with us.
• Bonuses are compounded, so in subsequent years you earn bonuses on the bonuses.
• The Sum Assured and bonuses are paid out after 5 years at 'maturity' or on earlier death.
• We also normally add a final bonus after 5 years.

How does the Flexible Savings Plan work?

• You invest a regular monthly premium (min £20, no max).
• You can stop or vary premiums whenever you wish.
• Each calendar year, we start a new certificate number for you and send you a notice showing your investments in the previous year(s).
• Unless you tell us otherwise, your premiums remain constant; they are only paid into the certificate which represents the current calendar year.
• There are no age limits.
• Your money is invested in our with-profits fund.
• At the end of each calendar year, we add a bonus to all your certificates, and send you a bonus notice.
• Once added, that bonus is a permanent addition to your investment with us.
• Bonuses are compounded, so in subsequent years you earn bonuses on the bonuses.
• Provided you invest each certificate for at least 3 years, we normally add a final bonus when you cash it in.
• You can leave your plan invested for as long as you wish. You should, however, view it as a medium to long term investment - at least 5 years.

Where is my premium invested?

The premiums are invested in the Society's with-profits fund which is made up of equities, government bonds, commercial property, corporate bonds and cash. The appropriate "mix" is listed below as at 31st December 2007. For more information on how the with-profits fund works, please refer to the "How we manage the with-profits fund".

1. Equities 44%
2. Government Bonds 36%
3. Commercial Property 8%
4. Corporate Bonds 7%
5. Cash 5%

How are bonuses determined?

Bonuses are decided by the Board acting on the advice of the with-profits actuary. A key factor in determining bonuses is the investment return in recent years.

What happens if the stockmarket falls?

All of our assets can rise and fall with the stockmarket, although investing in a range of assets does provide some protection to the fund. It is possible that this will result in the value of your plans reducing from time to time.

Under the Flexible Savings Plan, once a certificate has been in force for 10 complete calendar years (after the year of subscription), we guarantee that its encashment value will never be less than the premiums paid in plus all annual bonuses that have been added (and it will be greater when we pay a final bonus). Until that point, we reserve the right to apply a market value reduction so that the encashment value more fairly reflects our investment performance over the period of the certificate.

How do I apply for a 5 Year or Flexible Savings Plan?

Please make sure you all the details about these plans - and fill in the appropriate application form (Form A - for Police Officers or Police Staff, Form B - for partners or relatives) remembering to tick one box to tell us which plan you require. For new members Form B should be accompanied by reasonable proof of identity (copy of your Birth Certificate, Driving Licence or Passport) and of address (copy of a recent utility bill). Send it to us with your payment instructions.

Serving officers or staff in the Metropolitan and officers in the City of London Police Services can authorise us to take monthly premiums from their salary - both for their plan and that of their partner.

Any amount subscribed in this way for a partner will be for their benefit. Any partner's policy paid for in this way still legally belongs to that partner. It will be their tax status on encashment that determines whether there is any tax to pay at that time, and any payments will be made to them.

If you are retired, or a relative, or simply wish to pay by direct debit, please ask for a direct debit form (unless you already pay this way).

What happens to my plan if I die?

The value of your plan including any bonuses added will be payable to your estate. Under the 5 Year Plan, this will not be less than the Sum Assured. Under the Flexible Savings Plan, this will not be less than the premiums you have paid.

What if I change my mind?

We will send you a certificate of membership and a cancellation notice. If you change your mind, you can return the notice within 30 days for a full refund.

What might I get back?

An example - What you might get back after 5 years for a monthly premium of £50 into the 5 YEAR PLAN

• If investments grew at 4% a year - after 5 years, you would get back £3,120
• If investments grew at 5.5% a year - after 5 years, you would get back £3,240
• If investments grew at 7% a year - after 5 years, you would get back £3,360

The early years

Warning - if you cash in during the early years, you could get back less than you paid in.  The following examples show what you might get back - they assume investments will grow at 5.5% a year.

At the end of year	Total premium paid in to date	What you might get back
1	£600	£550
2	£1,200	£1,150
3	£1,800	£1,800
4	£2,400	£2,400

The final year

At the end of year	Total premium paid in to date	What you might get back
5	£3,000	£3,240

What are the charges?

• The charges, expenses and other deductions used are best estimates based on current experience.

What might I get back?

An example - What you might get back after 10 years for a monthly premium of £50 into the FLEXIBLE SAVINGS PLAN

• If investments grew at 4% a year - you would get back £6,680
• If investments grew at 6% a year - you would get back £7,610
• If investments grew at 8% a year - you would get back £8,440

The early years

Warning - if you cash in during the early years, you could get back less than you paid in. The following examples show what you might get back - they assume investments will grow at 6% a year.

At the end of year	Total premium paid in to date	Effect of deductions to date	What you might get back
1	£600	£7	£611
2	£1,200	£30	£1,240
3	£1,800	£69	£1,890
4	£2,400	£113	£2,580
5	£3,000	£163	£3,310

The later years

At the end of year	Total premium paid in to date	Effect of deductions to date	What you might get back
10	£6,000	£525	£7,610

What are the charges?

• TThe deductions include the cost of expenses, charges, any surrender penalties and other adjustments.
• The last line in the table shows that over a ten year period the effect of the total deductions could amount to £525.
• This would have the same effect as bringing down the investment growth from 6.0% a year to 4.7%.

How much will it cost for advice?

• The Society does not make any form of commission or incentive payments.
• The cost of providing verbal or written information about these plans is included in the Society's overall expenses.

Are there limits on premiums?

There is normally no limit - but under the 5 Year Plan we must able to underwrite the life insurance cover, so we may exceptionally impose one.

Can I choose how long to save for?

The 5 Year Plan has a fixed term of 5 years, but the Flexible Savings Plan can be left running for as long as you wish.

What about tax?

On both plans, we pay tax on our interest and capital gains, but only at the basic rate (20%). (Our ISA plan is similar to the Flexible Savings Plan, but we currently pay virtually no tax and therefore give you higher bonuses.)

If you are a higher rate taxpayer at the time of cashing in, you will need to declare any profit on your tax return and suffer income tax at the difference (currently 20%) between basic and higher rates upon it. You may be able to defer cashing in to avoid this under the Flexible Savings Plan - for example, by leaving your plan invested until after you retire if you expect your tax status to change. (Under the ISA, any profits on encashment are not subject to tax.)

How will I know how well my plan is doing?

We will send you a bonus notice every year, showing you the annual bonuses that have been earned; any final bonus (payable on encashment) will not be shown.

How do I contact you?

Metropolitan Police Friendly Society Limited,

Berwick House,

8-10 Knoll Rise,

Orpington,

Kent,

BR6 0EL,

Phone: 01689 891454

Fax: 01689 891455

Metphone 28192

Email: enquiries@mpfs.org.uk

Web: www.mpfs.org.uk.

Is it suitable for me?

If you are unsure as to the suitability of these products, and wish to obtain personal advice, you should contact an independent financial adviser.