Heritage With Profits Fund Investment Report: UK Life Business

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1 Heritage With Profits Fund Investment Report: UK Life Business Q This leaflet gives information on the following factors that affect with profits plan values types of assets how these affect investment returns investment market conditions asset mixes the asset mix for different classes of with profits life business asset and investment return details for each asset mix This leaflet is intended for individuals who are familiar with investment terminology. If you need an explanation of the terms used us at Please note that there is no guarantee that any sent will be received, or that the contents will remain private during internet transmission. Factors that affect with profits plan values The return on the asset mix is only one of the factors that affect with profits plan values. Other factors are the deductions we make, and any other discretionary adjustments that we may apply such as smoothing. The deductions are for example for costs of guarantees and our expenses. When Standard Life demutualised on 10 July 2006 the Heritage With Profits Fund was set up with an Inherited Estate. At least once a year we review whether it s appropriate to make distributions from the Inherited Estate. We use any distributions that we make to enhance with profits payouts. Some with profits plans guarantee a minimum payout, for example when you die or when your plan reaches its maturity date, as long as all payments have been made when due. The payout will then be at least the guaranteed benefit, even if the investment returns have been poor. Types of assets We invest in a wide range of assets including equities, property, bonds and cash deposits. We expect that a higher proportion of equities and property will produce returns that are higher over the long term, but more variable over the short term. We expect that a higher proportion of bonds and cash will result in returns that are more stable, but lower over the long term. Investment Market Conditions Monetary policy across the world remained supportive Fallout from the UK s referendum vote appears milder than expected so far Global equity markets delivered positive returns UK 10-year gilt yield hit a record low UK commercial real estate market steadied UK Equities Although the UK s referendum on EU membership took place in June, the future path of events will remain unclear for years to come. The country s new Prime Minister, Theresa May, confirmed that Article 50 - the formal process for leaving the EU - will not be triggered until March Nevertheless, both consumers and UK companies have proven resilient to date. Meanwhile, the FTSE 100 continued to rise on strong results for the UK listed companies that have a large part of their operations overseas. Sterling s fall to a three-decade-low has benefited companies that earn money abroad. Equities The US economy continued to improve over the third quarter. Non-farm payrolls averaged 200,000 per month, consumption remained robust and consumer confidence was at its highest since the financial crisis. In addition, new homes sales and house prices were up. Despite this relatively positive backdrop, the US Federal Reserve chose to stay its hand and keep interest Heritage With Profits Fund Investment Report: UK Life Business 01/06

2 rates on hold. These two factors combined supported UK risk assets. European stocks increased marginally over the quarter. Aside from the UK s EU referendum, Europe is fraught with uncertainties. Spain s political parties have yet to form a functioning majority government. In Italy, Prime Minister Matteo Renzi faces a challenge to his legitimacy, with a referendum on constitutional reform in December seen as a vote of confidence in his leadership. It was a volatile quarter for Japanese equities, marked by a sizeable sector rotation in August. This was caused by the Bank of Japan s ongoing purchase of exchange-traded funds, skewed the market to the ultimate benefit of large, value stocks. Interest The Bank of England announced both a rate cut, to 0.25%, and a new 60 billion quantitative easing programme. The 10-year gilt yield, moves inversely to its price, fell to record lows before edging back up later in the quarter as UK economic signals proved healthier than anticipated. bonds enjoyed a positive quarter. Strong technical factors, including the European Central Bank s Sector Purchase Programme and robust inflows into the asset class, were the primary driver of this. While the period started in the shadow of the surprise outcome of the UK s EU referendum, the expectation of further central bank intervention meant investors remained relatively sanguine. The Bank of England announcement that it would buy the sterling-denominated bonds of what it deemed to be strategically important issuers was well-received by investors. Property The UK commercial real estate market is gradually returning to some normality following the surprise result in the EU referendum. While heightened uncertainty remains, recent economic data have been better than initially feared. For example, business activity surveys rebounded quickly, while the unemployment rate remained static. Within real estate, investment activity was subdued in the first couple of months after the referendum. Trading volumes in August were 1.6 billion, compared with 4.4 billion in August However, market conditions then appeared to stabilise, with volumes rising to 2 billion in the first half of September according to preliminary data. Asset Mix Our aim when managing our with profits business is to provide growth over the long term, while continuing to maintain an appropriate level of financial strength so that we can meet all contractual obligations to our customers. We currently have four different asset mixes for our life business. Class of with profits business Fund Name (see your plan statement) Asset Mix Page Asset mix 4 is for With Profits Pension Annuities and this, together with Stakeholder With Profits, is covered in our Heritage With Profits Fund investment report for pension business. Unitised life plans for a minimum unit price growth rate of 3% a year applies With Profits Bond Homeplan and other unitised life plans not included above Mortgage endowments and other conventional life with profits plans With Profits Fund Asset Mix 1 3 Life With Profits Fund Life With Profits 2 Fund Life With Profits 2006 Fund Life With Profits Fund Life With Profits Fund S2 Life With Profits Fund S2 Life With Profits 2006 Fund Asset Mix 2 4 Asset Mix 3 5 N/A Asset Mix 5 6 We regularly review the asset mix that backs our with profits business, taking account of such things as: the nature and size of the guarantees for each class of with profits business the strength of the fund any changes in current and expected future market conditions. Note: the asset mix will also change as market values change. Any change in the asset mix is likely to result in a change in future returns and plan payouts, see page 1 Types of assets and Factors that affect with profits plan values. But it will not affect existing guarantees. 02/06 Heritage With Profits Fund Investment Report: UK Life Business

3 Asset Mix 1: With Profits Fund UK equities 7.2% equities 2.6% market/ equities 2.2% Property 5.3% Interest 14.7% Other* 68.0% 1. UK Govt 4.75% UK Govt 1.25% UK Govt 5% UK Govt 2% UK Govt 1.75% 2019 Asset Mix 1 0.4% 2.5% 3.9% 3.0% Asset Mix 1 is predominately invested in fixed interest and other bonds, in particular government bonds. This reflects the relatively higher guarantees provided by the classes of business backed by Asset Mix 1. The returns in Q3 reflect the positive returns in most asset classes tempered to an extent by the fall in Property. Asset mix details for last five calendar years Asset mix as at 31 December UK Equities 11% 9% 11% 10% 8% Equities 4% 3% 5% 5% 4% Market / non quoted equities 2% 1% 3% 3% 2% Property 6% 6% 5% 5% 6% Interest & Other* 77% 81% 76% 77% 80% * Interest & Other includes fixed interest, bonds including index linked bonds, cash deposits 8.7% 5.7% 2.6% 9.9% 1.7% Heritage With Profits Fund Investment Report: UK Life Business 03/06

4 Asset Mix 2: With Profits Bond UK equities 35.3% equities 14.3% market / equities 2.6% Property 17.9% Interest 10.9% Other* 19.0% 1. UK Govt 1.25% UK Govt 4.75% UK Govt 1.75% UK Govt 2% UK Govt 1.5% 2021 Asset Mix 2 3.0% 0.4% 2.8% 5.4% Asset Mix 2 is predominately invested in equities, in particular UK equities. The returns in Q3 reflect the positive returns in most asset classes tempered to an extent by the fall in Property. Asset Mix details for last five calendar years Asset Mix as at 31 December UK Equities 34% 35% 39% 35% 35% Equities 13% 13% 17% 16% 16% Market/ equities 5% 5% 3% 3% 3% Property 18% 17% 17% 18% 18% Interest & Other* 30% 30% 24% 28% 28% * Interest & Other includes fixed interest, bonds including index linked bonds, cash deposits 1.8% 10.2% 15% 7.8% 3.5% 04/06 Heritage With Profits Fund Investment Report: UK Life Business

5 Asset Mix 3 - See Page 2 for list of funds applicable UK equities 30.8% equities 12.7% market / equities 2.5% Property 16.2% Interest 13.5% Other* 24.3% 1. UK Govt 4.75% UK Govt 1.25% UK Govt 1.75% UK Govt 2% UK Govt 1.5% 2021 Asset Mix 3 2.6% 0.8% 3.1% 5.2% Asset Mix 3 is predominately invested in equities, in particular UK equities. The returns in Q3 reflect the positive returns in most asset classes tempered to an extent by the fall in Property. Asset Mix details for last five calendar years Asset mix as at 31 December UK Equities 30% 31% 36% 32% 31% Equities 12% 11% 15% 15% 14% Market/ equities 4% 5% 3% 3% 3% Property 16% 15% 15% 16% 16% Interest & Other* 38% 38% 31% 34% 36% * Interest & Other includes fixed interest, bonds including index linked bonds, cash deposits 2.9% 9.8% 13% 8.3% 3.2% Heritage With Profits Fund Investment Report: UK Life Business 05/06

6 Asset Mix 5: Conventional life with profits plans UK equities 21.2% equities 8.4% market / equities 2.4% Property 17.3% Interest 10.6% Other* 40.1% 1. UK Govt 1.25% UK Govt 4.75% UK Govt 1.75% UK Govt 1.5% UK Govt 1% 2017 Asset Mix 5 2.3% 0.9% 1.8% 3.3% Asset Mix 5 is predominately invested in fixed interest, government bonds and other bonds. The returns in Q3 reflect the positive returns in most asset classes tempered to an extent by the fall in Property. Asset Mix details for last five calendar years Asset Mix as at 31 December UK Equities 24% 23% 27% 20% 16% Equities 9% 8% 10% 10% 9% Market/ equities 3% 3% 3% 3% 4% Property 13% 13% 14% 19% 21% Interest & Other* 51% 53% 46% 48% 50% * Interest & Other includes fixed interest, bonds including index linked bonds, cash deposits 4.9% 7.9% 9.7% 6.5% 2.9% Standard Life Assurance Limited is registered in Scotland (SC286833) at Standard Life House, 30 Lothian Road, Edinburgh EH1 2DH. Standard Life Assurance Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. WP Standard Life 06/06