PHOENIX LIFE ASSURANCE LIMITED LONDON LIFE WITH-PROFITS FUND FORMER LONDON LIFE AMP (UK) WITH-PROFITS PENSION POLICIES

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1 With-profits policy performance your questions answered January 2015 PHOENIX LIFE ASSURANCE LIMITED LONDON LIFE WITH-PROFITS FUND FORMER LONDON LIFE AMP (UK) WITH-PROFITS PENSION POLICIES The aim of this leaflet is to provide answers to some of the questions that are often asked about the performance of former London Life AMP (UK) with-profits pension policies that invest in the Phoenix Life Assurance Limited London Life With-Profits Fund ( the fund ). 1 What is a with-profits pension policy and how does it work? Over the years, there have been various types of pension policies. The majority were originally designed to build up a pension fund, which would be used to buy a regular income at the chosen pension age, either from us or from another pension provider. From April 2015 greater pension flexibility is being introduced. When you come to take your retirement benefits there will be a range of options to choose from. For more information on these options, please see the Pension & Retirement section on our website A with-profits policy is one that shares in any profits arising from a life company s with-profits fund. Any available profits are added to policies in the form of bonuses. These can be annual bonuses or a final bonus. The addition of any annual bonus is not guaranteed. However, once an annual bonus has been added, it increases the pension fund at the chosen pension age, and cannot be taken away. When we pay out at the chosen pension age, we may add a final bonus. This will depend upon the performance of the fund over the full term of the policy and the value of any benefits already guaranteed. The payment of a final bonus is not guaranteed. Our guide called How we manage the Phoenix Life Assurance Limited London Life With-Profits Fund traditional with-profits policies provides more detail on how we manage the with-profits fund. We refer to this as the guide. You can obtain a copy of the guide here or you can ask us for a copy. We recommend that you read the guide before reading the rest of this leaflet, as it will help you to understand some of the terms we use. 2 How do you work out what bonus to pay? We answer this question in the guide. However, you may find the following explanation helpful. When we set up the pension policy, we take into account your age, your chosen pension age, the level of premium you are going to pay and our expected cost of setting up and running the policy. We also assume that we will only earn a relatively low return on the investments underlying your policy. This is to ensure we could still pay the pension fund if investment returns and other experience were unfavourable. Page 1 of 6

2 If we earn a higher return than that assumed, the underlying value of your policy (the premiums you pay each year plus investment returns, less expenses and charges) will grow to a value higher than that assumed. In the past, if we earned a higher return than that assumed, we would normally have added an annual bonus to your policy to give you a share of this extra return. Once added, we cannot take these annual bonuses away. If, when we pay out at the chosen pension age, the underlying value of your policy is less than the pension fund and the bonuses already added, we would still pay out the guaranteed benefits (pension fund and annual bonuses already added). If, when we pay out at the chosen pension age, the underlying value of your policy is more than the pension fund and the bonuses already added, we would normally add a final bonus. 3 Why is my annual bonus rate zero? Will it ever increase? Annual bonuses have been zero since This is because the benefits already guaranteed under most policies (pension funds and annual bonuses already added) are higher than the underlying value of the policies. This is mostly because of the lower investment returns that have been earned over recent years. As we have said for a number of years, our current approach is to not add any further annual bonuses. Instead, any growth in excess of that required to meet the guaranteed benefits will be added as a final bonus at the chosen pension age. However, for these policies the value of the guaranteed benefits is significantly higher than their fair share of the with-profits fund. Therefore, many of the final bonus rates have been zero for some time, and it is now unlikely that we will be able to pay any final bonus on these policies (see also question 6). Page 2 of 6

3 4 What does the fund invest in? The premiums paid into the fund are invested in a range of assets. The underlying value of your policy was invested as shown in the chart below as at the end of The fund s main investment objective, apart from maximising return where possible, is to protect the security of policyholders guaranteed benefits. Because of the high guarantees on former London Life AMP (UK) with-profits pension policies, the assets backing these policies are now invested in lower risk investments such as fixed interest securities (bonds or loans issued by governments or companies) and cash. These investments provide a degree of stability but potentially lower returns compared to higher risk investments such as company shares (equities) and property (land and buildings). 5 How does this compare with the investment strategy of other companies with-profits funds? Other with-profits funds invest largely in the same types of investments as we do, but typically have exposure to higher risk investments such as company shares (equities) and property (land & buildings) which are expected to provide a higher return in the medium to long term. The way a with-profits fund is invested will depend on a number of factors, including the current financial position of the fund and the company s view of the prospects for each type of investment. With-profits funds with large amounts of excess money, over the amount needed to pay out fair benefits to current policyholders, can afford to hold more investments in higher risk assets such as equities and property. This is because if equity values fall, the company can still pay out the guaranteed amounts from their excess money. We do not have significant excess money over the amount needed to pay out guaranteed benefits, and the proportions invested in higher risk investments reflect this. 6 Will I get any final bonus when my policy pays out? When we pay out at the chosen pension age, we aim to pay you your fair share of the with-profits fund, or the guaranteed benefits if they are higher. As explained in the guide and in the answer to Page 3 of 6

4 question 2 above, if the underlying value of your policy (the premiums you have paid, less its share of expenses and charges, plus investment returns) is less than the guaranteed value (pension fund and annual bonuses already added) we will not be able to add a final bonus. However, as explained in question 3, it is now unlikely that we will be able to pay any final bonus on these policies. 7 Why is my pension fund lower than was previously projected? Projections of future benefits, by their nature have to use a number of assumptions, including future rates of investment returns. The resulting figures are only examples of what you might get back and are not guaranteed. Where the investment return earned for a policy has been less than the assumed return previously used for projecting benefits, payouts will be correspondingly lower than that shown in projections. A major contributor to this has been the need to set aside money to ensure that we can pay the benefits already guaranteed under our policies. This has restricted the amount we have been able to invest in higher risk investments such as equities (company shares) and property which can potentially provide higher returns. Projected values currently given on policies still to pay out, are now generally lower than those provided in the past, as not only do we take into account the lower returns earned in the past, we also anticipate lower returns in the future. Page 4 of 6

5 8 Should I keep my policy going or stop it now? Before you decide to make any changes to your policy, we recommend that you consider other options that may be available by speaking with your financial adviser. If you do not have a financial adviser, you can find details of the advisers in your area at Please note that financial advisers may charge you for providing advice. You can end your policy at any time and transfer its current value (its transfer value ) (See Question 9) to another pension arrangement. Some things you may want to take into account when considering whether to take a transfer value include: whether you expect to be able to earn a sufficiently good future return in an alternative pension arrangement for your transfer value to grow to a larger amount than the minimum guaranteed to be available at your chosen retirement date; and how the cost of buying an annuity may vary in future; many of our pension policies include guaranteed minimum rates for buying pensions from some, or all, of the amount available at retirement ( guaranteed annuity rates ). For most people, these will currently be significantly better than the rates available from insurance companies generally. Please look at your policy document and annual statement, or contact us, if you want to know the guaranteed benefits under your policy. The alternatives available to transferring your policy include the following: Using the current value of your policy to provide you with a pension and / or tax-free cash immediately where this is available. If you are paying regular premiums, you can stop paying premiums. This will reduce the guaranteed value of your policy to reflect the premiums you will not now pay. From April 2015 greater pension flexibility is being introduced and once you reach age 55 you will be able to use the current value of your policy to provide you with cash immediately, although this may be taxable and may be lower than the minimum guaranteed to be available at your intended retirement date. 9 How do you work out my transfer value? For policies which are close to their chosen retirement date, we aim to avoid a big difference between the amount we would pay on transfer (the transfer value ) and the amount expected to be available to provide retirement benefits at the stated retirement date. At other times, the transfer value is based on the underlying value of your policy (build-up of your premiums less our costs). 10 How often do you review my transfer value? We normally review the way we calculate our transfer values twice a year to allow for the most recent fund performance. We might need to review them more frequently if the value of the investments in the fund changes significantly. Transfer values can change quite a lot to reflect the performance of the fund since the last review. In some cases, the change could result in a reduction even though you have paid more premiums since our last review. 11 What does the shareholder get from my policy? Phoenix Life Assurance Limited is one of the life companies within the Phoenix Group of companies (Phoenix Group). Shareholders do not receive any share of the cost of bonuses distributed to policyholders. Page 5 of 6

6 Other companies in the Phoenix Group administer our policies. If they can carry out their responsibilities for less than the fees we pay them, this could result in profit for those companies. 12 How do I get further information? Versions of this leaflet may be available for other types of with-profits policy and for the policies of other life companies within the group. If this leaflet has not answered your questions we will be happy to help you further. Please contact us here. You can also find the latest information such as final bonus rates and how these are calculated, how the fund is invested and investment returns here. The information in this leaflet was correct as at 1 January FS_PLAL_LL_AMPPEN_01_2015 Phoenix Life Limited No and Phoenix Life Assurance Limited No.1419 are authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. All companies are registered in England and have their registered office at: 1 Wythall Green Way, Wythall, Birmingham, B47 6WG.. Page 6 of 6