Aims of this guide
This guide explains how we manage our with-profits fund. It is designed for Forester Life members holding with-profits plans.
Why this guide is important
Please read this guide. It gives important information about how with-profits plans work and what Forester Life planholders can expect back from them.
We manage the with-profits fund in which you are a planholder. The investments in this fund are kept separate from our other investments. Furthermore, 100% of the profits go to policyholders and nothing to our shareholders.
- We manage the fund by following: Guiding principles; and
- Principles and Practices of Financial Management (PPFM).
What are the guiding principles?
Our guiding principles are the philosophy on which we base our management of the fund.
- We will manage our entire business in a lawful, sound and prudent manner. We will also manage the fund to make sure we can pay all guarantees and aim to give fair treatment to all our customers.
- In good years, we will hold back some of the profits made by the fund and use them to pay out more in poorer years. This is known as ‘smoothing’. However, smoothing will not stop what we pay out from getting smaller if investment returns remain low over several years.
- If we think there’s not enough money in the with-profits fund to enable us to meet our commitments to the policyholders, we may add some money – temporarily or permanently – from our other funds. We will not use the with-profits fund to support our other funds or other companies in our group.
- We will aim to make sure that all the money in the fund is distributed over the remaining lifetime of the plans in the fund.
- Normally we won’t change the approach we use when managing the fund. But we might consider making such a change if, for example, we need to:
- protect the financial position of the fund in adverse circumstances;
- improve the accuracy of our methods;
- correct any major errors;
- ensure we follow changes in taxation or regulation guidance; or
- deal with unforeseen events.
What is the PPFM?
The PPFM is a document describing how we run our with-profits business. It is split into Principles and Practices.
Principles are high-level statements that describe our long-term approach to managing the fund. Practices are more specific statements that flow from the Principles. These describe how we manage the fund.
We don’t expect to change the Principles often, but will do so if we think they could lead to planholders being treated unfairly or if they could stop us managing the fund properly. We must tell you at least three months in advance if changes are to happen. Then you will know how our long-term approach will be changing.
Practices change more often because we need to respond to how the economy is doing, new rules and regulations, and new methods in the life insurance industry. We will publish any changes to Practices on our website and tell you about them in our next letter to you. Then you will know how our approach has changed.
The PPFM is a long and detailed document. So this guide sets outs only its key points.
To obtain our current PPFM please click here.
2. What are enhanced asset shares?
- Asset share is a calculation that determines how much each plan has contributed to the fund and how much profit or loss the plan has made. We calculate asset share by:
- looking at the premiums the plan has paid to the fund;
- making deductions to cover our expenses, tax and the costs of providing benefits to the plan; and
- adding the investment returns made by the plan.
- Where the total asset share of all the policies is less than the value of the fund, we add on additional investment returns, usually annually.
- We call this increased asset share an enhanced asset share.
3. How we decide how much you get
- How much you get, and when, depends on the type of with-profits plan you have. There are three main types of with-profits plan in the fund:
- with-profits whole-life;
- with-profits term assurances; and
- with-profits endowments.
- Your plan policy – which is a legal document setting out our obligations and yours – tells you which one you have.
- If you have lost your plan policy, or are unsure which type you have, please phone us on 0333 600 0333.
- Under your with-profits plan, in return for your premiums, we pay a guaranteed lump-sum payment (called a sum assured).
- We aim to increase the guaranteed amount by adding bonuses.
- When we pay the guaranteed amount (and bonuses) will depend upon the type of plan you have.
- If you have a whole-life plan then the guaranteed amount will be paid on your death.
- If you have a term assurance then the guaranteed amount will only be paid if you die before the end of the plan’s term.
- If you have an endowment then the guaranteed amount will be paid at the end of the plan’s term or your earlier death.
- Different amounts may be paid out on other events, such as your partner’s death. There may also be different amounts depending on when you die. Your plan policy will tell you what all these amounts are.
- If you leave your plan early, you may be entitled to a payment (called a surrender value). This payment will usually be less than the guaranteed amount and bonuses.
- Some plans have guaranteed surrender values. This means that the amount we pay out on surrender will never be less than the amount shown in your plan policy.
4. How we decide bonuses
- We normally announce bonuses once a year. When deciding whether we should pay bonuses, we look at the current financial position of the fund and forecast how we expect this to change in the future. If we think profits are not, or will not be, enough, we may not pay any bonuses.
- We also look at the level of guaranteed benefits on plans compared to the enhanced asset share of plans.
- If the guaranteed benefits for your plan are higher than its enhanced asset share, bonuses may be small or nothing.
- We pay different bonuses for different groups of plans to reflect the nature of the plans.
- We usually pay annual bonuses once a year to with-profits plans.
- Annual bonuses are set by taking into account what the fund can afford to pay now and in the future. This approach enables us to make sure we can meet all guaranteed amounts when they have to be paid.
- We aim to not vary too much the amount of annual bonuses from year to year.
- Once an annual bonus has been added, it increases the guaranteed amount on your plan and so cannot be taken away.
- If you make a claim between dates on which we’ve paid an annual bonus, we will add an interim bonus too.This makes up for some, or all, of the expected annual bonus earned since the last one.
- Interim bonuses will be paid at the same rates as the last annual bonus.
- Final (or terminal) bonuses may be paid to plans when they end. We pay them to make sure that what you get back fairly reflects your enhanced asset share; if the existing bonuses we have paid to you have not already done this.
- In recent years, we have not paid a final bonus on many plans due to stock market falls and the general fall in interest rates.
5. How we decide how much you get if you leave your plan early
- If you leave your plan early (surrender your plan), we work out how much to pay you with the aim of being fair to planholders leaving the fund and those staying. If there is any conflict between the interests of planholders who are leaving and those who are staying, we normally give priority to those staying.
- We work out your surrender value by comparing a proportion of your plan’s enhanced asset share with your minimum surrender value. We then pay you the higher amount.
- If your plan has a guaranteed surrender value, then that will be your minimum surrender value. If it does not, we have a basis for calculating minimum surrender values. We review this basis periodically, to ensure it is appropriate.
6. How we cushion you from the ups and downs of the stock market
- Historically, the value of shares and property has risen more than government bonds and cash over long periods, such as 20 years. However, the returns from shares and property are subject to a greater degree of investment risk. One year an investment may do very well, the next it could fall in value.
- We aim to cushion investors against heavy falls by adding bonuses. Instead of adding big bonuses in good years and small or no bonuses in bad years, we aim to smooth out the returns. So we hold back some of the profit earned during good years and then release it as bonuses when returns have been poorer or seem likely to get poorer. This ‘smoothing’ is one of the main ways in which the with-profits fund aims to be fair to all investors. It also keeps the fund financially strong.
7. How we invest the with-profits fund
- We decide what to invest in and how much to invest by looking at:
- the fund’s current and future financial position and the need to make sure there’s enough money in it;
- the level of guarantees in the fund; and
- planholders’ investment expectations.
- The fund invests in a mix of equities (shares), fixed-interest type assets (such as government bonds and corporate bonds) and cash. These different investment types are called assets.
- We control the risks that come with investing by choosing assets of good quality and by setting limits on the amounts we invest in any one asset and on our exposure to any third party.
- We review our investment strategy at least annually but may need to do so more often if market conditions change quickly.
8. How we minimise risks to the fund
- The fund is exposed to a number of risks. Our biggest risks come from the need to pay all guarantees when they are due and the possibility of falls in share values.
- We aim to minimise risks to the fund and our business. We do this by, for example, changing our investment strategy.
- Except for normal levels of investment risk resulting from managing the fund’s assets, the fund will not take on any significant new risks. In particular, we’ve closed the fund to all new business.
9. How we decide charges and expenses
- All charges for administration, expenses and commission are based on what we calculate to the fund’s fair share of the costs we incur.
- The cost of investment management is based on what we calculate to be the fair share of our total investment management costs. This calculation takes into account the fund’s investment activity (i.e. the costs of buying and selling assets).
10. What the estate is and how we use it
- Some with-profits firms have what is known as an “estate”. This is a pot of money that provides working capital for the fund and supports its operation. We build up this pot from profits that are not needed to support the fund’s current and future liabilities.
- As this is a closed fund, we aim to ensure a fair and orderly distribution of all the fund’s assets, including the estate, over the remaining lifetime of the policies in force in the fund. We are doing this by the use of enhanced asset shares.
- By taking this approach, we expect the estate to run down to zero over time, broadly in line with the decrease in the fund.
- When the number of policies falls below 5,000, we may convert the remaining policies in the fund so that they all receive fixed bonuses. We would then merge the with-profits fund with our other funds.
- We do not know yet when this might occur, although it is not expected for many years. We will let planholders know as soon as a decision has been made. Any decision would have to satisfy any relevant legal and regulatory requirements prevailing at the time.
11. How to find out more
You can get a more detailed technical description of how we manage the with-profits fund in our PPFM. You or your adviser can ask us for a copy, please write to:
Customer Services Team
2 Cromwell Avenue
Bromley BR2 9BF
Alternatively, you can access it here.
As part of our commitment to keeping you informed we will send you an update about the fund with your yearly bonus statement.
We produce an annual report showing how we have complied with the PPFM, to view the report please click here. The fund's With-Profits Actuary has also produced such a report, if you would like to view the report please click here.
Aims of this guide
This guide tells you how we manage the Communication Workers Fund.
Why this guide is important
Please read this guide. It gives important information about how plans work and what plan holders can expect back from them.
1. What does the guide cover?
This guide applies to all with-profits life and savings policies in the Communication Workers Fund (the CWF). In particular, it covers:
- how your policy provides financial security for you and your dependants; and
- how our approach to managing the CWF affects the amount you get back from your policy.
Our approach can change from time to time, so we will write to you if we make alterations that may significantly affect your policy.
Extra information on children’s savings policies started before April 2001 is given in Section 8. Unless otherwise stated, references within this document to “death” in the case of children’s savings policies relate to the death of the child.
Note that this document is only a brief summary. Please see Section 9 which tells you where you can go for more detailed information.
2. What is a with-profits policy?
A with-profits policy is an investment policy that provides:
- the possibility of long-term growth for your savings (by long-term we mean more than five years);
- a guarantee that you will receive a minimum amount at the end of the policy, either at the maturity date of the policy or on your earlier death; and
- some protection against the ups and downs of investment markets (known as smoothing).
3. How does the CWF work?
Your premiums are added to all other policyholders’ premiums in the CWF. The fund is invested in a range of different assets such as company shares, property, bonds and cash (bonds are a type of loan to the Government or larger companies). The cost of handling your premiums and of managing your investment is paid for out of the fund. When your policy ends the money you receive is paid from the fund.
In deciding what investments to make, Forester Life adopts a balanced approach that aims to achieve steady long-term growth while avoiding excessive risks. In addition, we will vary the proportion we put into each type of asset over time depending on how we believe that asset is likely to perform in the future and the risks associated with investing in it.
Fairness to all policyholders in the CWF – asset shares
We aim to pay all policyholders their fair share of the value of the CWF when their policy comes to an end. This is known as your asset share. We calculate asset shares by taking into account:
- how much the fund has grown over the period you have contributed to it;
- what expenses have been incurred by the fund over this period; and
- the size of your contribution in relation to other people’s contributions.
In working out your share of the growth in the fund, we group policies of a similar type and length together. In working out what proportion of the total expenses to charge to your policy we may take into account the costs of any guaranteed benefits, such as the death benefit, provided for under your policy.
You should also note that the expenses incurred by the fund may reflect profits or losses arising on non-profits business. Such profits or losses may only occur on non-profits business within the fund.
4. What are bonuses and guaranteed benefits?
The main payment under the policy is the sum assured. This is a fixed cash sum that we guarantee you will be paid on the maturity date (or on earlier death). We add bonuses to this sum assured so that the total payment you receive is based on your asset share.
We can add two types of bonuses to your policy. These are:
- annual bonuses, which are added each year to your policy and, once added, we cannot take them away; and
- a final bonus, which may be added on top of the annual bonuses when your policy comes to an end.
The with-profits actuary advises the Board on what bonuses to set on an annual basis, but it is down to the Board to make the final decision. It is the role of the with-profits actuary to report to the Board on areas of discretion as they relate to the fair treatment of policyholders.
An actuary is an expert in statistics and its application to solving problems regarding financial predictions. Actuaries are particularly involved in the fields of life insurance, pension funds, general insurance and the investment of the funds underlying those businesses.
We do not guarantee that we will always add bonuses although, unless there are unusual circumstances, the with-profits actuary would normally be in a position to recommend the payment of a bonus. When setting bonuses we will usually hold some of the fund in reserve in order to cope with variations in the performance of our investments, especially those that are linked to the stock market.
All with-profits policyholders will be sent an annual bonus statement which includes information about the current bonuses, as well as bonuses that have previously been added to your policy.
a) Annual bonuses
When deciding how much annual bonus to pay, one of the most important things we look at is how investments are likely to perform in future. For example, if we expect the return on investments to fall, we are likely to reduce bonuses. This could happen even if actual returns in the previous years have been higher. The with-profits actuary does try to ensure that bonus rates do not fluctuate too much from year to year and may hold back bonus in good years to compensate for less good years.
Annual bonuses cannot be taken away, so each annual bonus adds to the guaranteed value of your policy, unless you choose to surrender your policy early. In the event of surrender of the policy, the full value of allotted bonuses will not be paid and in the case of early surrender (for example, within the first five years) much of the bonus may be lost and you are likely to get back much less than you have paid in - please see Section 7. The decision whether to surrender or ‘cash in’ your policy is always yours but should be taken very carefully. We strongly recommend that you contact us before cashing in your policy as we may be able to suggest other alternatives, especially if you are experiencing any financial difficulties.
When a payment is made at the end of a policy, we may add an interim annual bonus too. This makes up for some or all of the expected annual bonus earned since the date on which the last annual bonus was added to your policy.
b) Final bonuses
Final bonuses may be added to policies when they end. Final bonuses are paid in order to ensure that you get back your asset share of the CWF. Note that if the total of the sum assured and annual bonuses already allocated to your policy is larger than your asset share, we guarantee to pay the larger amount. No final bonus would be paid in this case.
5. What affects the value of my policy?
Many factors affect what you will get back from your policy. These are the main ones:
a) Investment returns
The biggest factor is the investment return earned by the CWF during the lifetime of your policy.
The investment return depends on several things, including how much of the fund we invest in different types of assets. We hold some higher-risk and potentially higher-return assets such as shares and property.
The rest is in lower-risk investments such as fixed-interest bonds issued by the Government or companies, as well as in cash deposits that earn interest.
The aim of our investment strategy is to achieve returns that will enable us to meet the guarantees under your policy, whilst also providing an opportunity to achieve greater growth through the use of potentially higher-return investments.
Some of the investment return we receive in the fund is free of all taxes, but we do pay tax on the rest. You will not normally have to pay tax on the payments we make to you, although additional tax payments can sometimes arise.
Over time the performance of different types of investments varies a lot, so we may change the balance of the investments to:
- improve long-term performance; and
- make sure that the CWF can always meet guaranteed payments to policy holders.
b) Guarantees to you
We guarantee a minimum amount that you will get back from your with-profits policy, but the guarantee only applies if you pay all the premiums that are due and:
- you hold the plan to the maturity date, or
- you die before the plan matures.
This minimum amount is usually the sum assured plus attaching bonuses, but may be a higher amount for your policy.
In managing the CWF we will seek to reduce the impact of investment market fluctuations, usually those that have occurred in the last three to five years, on what you get back. This is a process we call smoothing.
So, for example, if there is a sudden rise in the value of the investments held by the CWF, then the value of the fund will increase. The asset share on which we base the payments under your policy would also increase. We would not, however, immediately increase the final bonus to take account of this increase in your asset share; rather we would hold some funds back. On the other hand, should investment markets suddenly fall, we would not immediately reduce the final bonus and would instead use funds held back to pay more than asset share on policies that end.
Smoothing means that you do not need to worry about exactly when your policy is due to mature. We will make the same payment on similar policies from one month to the next even if the value of the underlying investments has changed. The only exceptions to this are once a year when the bonus scales are reviewed and adjusted; or possibly in cases where investment markets change by a very large amount in a short period, when we may be forced to carry out an additional review of final bonus rates. Our aim is to ensure that no matter what happens in the investment markets we can still be fair to all investors in the CWF. (Please also refer to ‘asset shares’ in Section 3 above.)
d) Our charges
All charges for administration and expenses are set out in the Transfer Agreement, a document that sets out the basis on which Forester Life will manage the CWF. The charges are as follows:
- 8.3% of each premium received. This charge increases in line with the Retail Price Index; plus
- 0.2% each year of the asset value of the CWF.
All of the charges are deducted from asset shares.
e) The value of the policy on death
On death, we will pay the sum assured plus annual bonuses declared during the lifetime of a policy plus, possibly, a final bonus. This would normally be well in excess of asset share. This is an extra benefit of a with-profits policy and all policyholders effectively make a small contribution to the cost of making the extra payments to the small number of policyholders who are unfortunate enough to die before their policy matures.
For the children’s life and savings policy, there are two people involved, and the full payment of the sum assured and bonuses is made only where the child dies. If the adult dies the policy continues but we pay all future premiums from the CWF to ensure that the full value of the policy still goes to the child at maturity. The requirement to pay all future premiums in this case only applies when, at the time the policy was taken out, the person originally taking out the policy was less than 60.
6. The inherited estate and how we use it
The CWF has what is known as an inherited estate. This is a pot of money that has been built up over many years and which now provides working capital for the fund and supports its operation. It is gradually being distributed to policyholders as the fund diminishes.
7. Ending my policy early
For policies taken out before 2009, if you decide to surrender your policy there is a fixed scale of penalties that we will apply in the first few years. Details of these penalties were provided to you at the time you took out the policy. In later years, after your policy has been in force for five full years, we will make a payment to you based on your asset share in a similar way to the assessment we make for policies that are maturing. We aim for this payment to be approximately 95% of your asset share.
For policies taken out in 2009 and later, no surrender value is payable until premiums have been paid for 12 months. After this time, we will make a payment to you based on your asset share in a similar way to the assessment we make for policies that are maturing. Again, we aim for this payment to be approximately 95% of asset share.
The only reason you may get back more than the above amounts is if you have an old-style policy that also protects you against medical retirement or compulsory redundancy. In this case, on the first of these events to occur you will receive:
- if your policy has been running for less than 10 years, a refund of premiums with interest; or
- if your policy has run for more than 10 years, payment of the full sum assured and bonuses, as though your policy had matured early.
8. Children’s policies written before April 2001
Children’s policies written before April 2001 differ from the policies described in the rest of this document. The main difference is that the sum assured is not a fixed cash amount but is expressed as the value of a number of units instead. Each premium purchases further units and annual bonuses increase the value of those units. Once added to your policy the value of units is guaranteed. In other respects these with-profits policies operate in a similar way to the rest of our with-profits business.
9. Where can I find out more?
You can get a more detailed technical description of how we manage the CWF in our PPFM. You or your adviser can ask us for a copy (please write to Customer Services, Foresters House, 2 Cromwell Avenue, Bromley BR2 9BF or send an email to firstname.lastname@example.org).
As part of our commitment to keeping you informed we will send you an update about the fund with your yearly bonus statement.
We produce an annual report showing how we have complied with the PPFM. The fund's With-Profits Actuary has also produced such a report, if you would like to view the report please click here.
We have also produced a document setting out how we distribute bonuses.