With-Profits Fund

We go into detail about how the with-profits business is run in the “Principles and Practices of Financial Management”. The full PPFM is available on the websites, but all our brochures include a summary with the key features. One of our independent Non-Executive Directors oversees the application of the PPFM on behalf of the Board.

We aim to base pay-outs to members on their premiums accumulated to allow for our investment return, less (where applicable) allowance for tax and and the cost of life cover, and after meeting our expenses. Last year, having regard to our financial strength, we increased pay-outs to return some of our capital to members. In 2008, we will continue to return capital to members in this way, but to a greater extent.

The investment return on the Fund is much less volatile than the markets in which it invests. First, we spread our assets – with the main components being UK equities and government stock. Second, we “smooth” the return to members, effectively averaging out the peaks and troughs. For example, the pay-out on a 10 year tax-exempt savings plan for £25 per month (total premiums of £3000) has varied over the past 5 years from £3950 to £4350, and is currently about £4120.