How we manage our with-profits fund

The following sections explain details of how we manage our with-profits fund.

Annual report to with-profits policyholders

The Board of Scottish Widows Limited are responsible for the running of the with-profits fund. You can view or download our Annual Report to With-Profits Policyholders. This shows that we manage our business in line with the Principles and Practices of Financial Management and summarises the steps we have taken to ensure that we continue to do this and treat customers fairly. It also contains the With-Profits Actuary's statement on the management of the with-profits business.

With-profits committee

We’re committed to treating all of our customers fairly. To help us do this we have a With-Profits Committee. The responsibility of the Committee is to provide an independent view on the management and operations of the with-profits business. The Committee reviews how the with-profits fund is managed and scrutinises any major proposal that affects the fund. The committee meets separately from and provides advice to the Scottish Widows Limited Board.

The Committee has three members, none of whom have any management or executive role with the company (or our parent company, Lloyds Banking Group). One member is a non-executive director. For further information about what the With Profits Committee does, you can read the terms of reference.

Principles and practices of financial management

The principles and practices of financial management (PPFM) is a document that sets out how we manage our with-profits fund and with-profits policies. The PPFM is a very lengthy and detailed document, so we’ve also produced ‘Your Guide to With-Profits’ which explains in less detail how your with-profits policy works.

Since our PPFM was first published on 30 April 2004, we have made some changes, mainly in response to regulatory requirements on 30 June 2005. We made further small changes on:

The most recent changes were made on 1 January 2019 and relate primarily to the way that terminal bonuses are calculated. For pre 3rd March 2000 policies, we have changed the way we apply a reduction that goes towards the cost of guarantees. Rather than applying the reduction directly to asset shares when calculating terminal bonus rates, it is applied to the Additional Account reducing the level available for distribution. Further, for Conventional With-Profits business, the PPFM has been reflected to show that when calculating payouts where guarantees do not apply, the target is to pay 100% of asset share (previously it was around 95% for the first two thirds of a policy term increasing to 100% at the date the guarantee applied). Additional wording has also been added to clarify that additions to payouts in respect of the Retained Account continue to accumulate beyond 3rd March 2000. It has also been clarified that the distribution of the Retained Account is applied after the terminal bonus rate is set to a minimum of zero.

Further minor changes have been made including a change to the wording around the non-with-profits business within the Scottish Widows With Profits Fund to clarify that it is running off, and updated wording on when we would review the Overall Yields for the With-Profits Growth Units.

Scheme of Transfer 2015

On 31 December 2015, changes came into effect that simplified the business of the Scottish Widows Group of companies. This involved the transfer to Clerical Medical Investment Group Limited of all the policies of certain companies in the Lloyds Banking Group (including Scottish Widows plc). Clerical Medical Investment Group Limited was then renamed Scottish Widows Limited. The legal document that governed how that transfer was made is called a 'Scheme of Transfer'. That Scheme of Transfer now governs much of how we operate our with-profits business. It is referred to in our Principles and Practices of Financial Management (PPFM) and some relevant extracts are included within the PPFM. If, however, you wish to read the full text, you can view and download the Scheme of Transfer 2015. Please note that this is a highly technical document.

Our current with-profits fund investment approach and enhancements

Payout enhancements

Payouts for policies that started on or before 3 March 2000 may be increased by distributions from the Additional Account and Retained Account, which were set up at demutualisation.

The distributions from the Retained Account are currently increasing payouts by up to 2.0% in respect of premiums paid by 3 March 2000. We expect to be able to maintain this level but this is not guaranteed. We will update the rate shown on this website if it changes.

The current distributions from the Additional Account equate to an increase in the investment return of 0.7% per annum from the date of demutualisation (3 March 2000). This distribution rate is not guaranteed and is reviewed at least annually. If it changes we will update the rate shown on this website. We expect this enhancement to increase over time, unless there is a market downturn or the with-profits fund suffers some other significant losses (for example if life expectancies increase significantly so that pensions being paid to customers continue for much longer than currently expected). In these events the distribution could be reduced or stopped.

Asset mix of our with-profits fund

The Scottish Widows with-profits fund invests in a mix of assets such as company shares (also known as equity shares), property, bonds (also known as fixed-interest securities) and cash deposits. The proportion of our with-profits fund that is put into each of these different types of asset will vary over time. The mix of assets can be different for different parts of the fund. You can view and download the Asset mix of our with-profits fund.

Investment factsheet for our with-profits fund

You can also view and download the investment factsheet for the main part of our with-profits fund.