Returning Capital To Our Members

Our capital is the amount by which our assets exceed our liabilities. For many years, we have had more than sufficient capital to run the business. We have used some of that capital to top up the investment return that we credit to our members – effectively increasing our liabilities whilst still retaining a sufficient
surplus to run the business.

If the merger had proceeded, we were proposing to return the remaining capital to members in 2 ways – a one-off windfall payment and increased pay-outs on savings and investment contracts. Now that the merger has been ruled out, our intentions are a little different. We will continue to top up the investment return (for so long as we can do so safely); and we will increase the pay-outs beyond current levels – to give 2 examples

• A jump of about 3% for 5 year plans maturing in 2010,
  
• A jump of 5% for with-profit bonds cashed in after 10 years.

We will retain more capital in the fund than if we had proceeded with the windfall payment. That will enable us to maintain a higher exposure to the equity market. Historically that has been the source of the best investment returns; and recent market movements suggest that equities are now in a recovery phase.