Phoenix Life Limited Phoenix With- Profits Fund

PHOENIX LIFE LIMITED PHOENIX WITHPROFITS FUNDWith-profits bonds started between 1992 and 1996With-profits policy performance – your questions answeredQA PWP orwpb 01/22

January 2022With-profits policy performance – your questions answeredIntroductionThis leaflet aims to answer questions that are often asked about the with-profits bond policies, like yours,which are invested in the Phoenix Life Limited Phoenix With-Profits Fund (‘this fund’).BackgroundThese policies were transferred into Phoenix Life Limited from Phoenix Life and Pensions Limited on 31December 2006 as a result of a scheme approved by the High Court. Phoenix Life and Pensions Limited waspreviously called Royal and Sun Alliance Life and Pensions Limited and, prior to that, Royal Life Limited.ContentsThe questions we aim to answer are:Page1. How does this fund work?12. What are my benefits?2What is a market value reduction (MVR)?3. How do you decide what bonuses to pay?23Annual bonuses3Latest bonus information3Surplus money3How do you calculate market value reductions (MVR)?34. Why might payouts differ from projections?45. How is this fund invested?46. What about the shareholders?57. Who looks after my interests?58. Where can I find out more?5This leaflet is correct at 1 January 2022. The way we manage this fund may change from time to time. Wewill write to you if we make changes that may have a major effect on your policy.If you would like more details about any of the information in this leaflet, please refer to section 9: “Where canI find out more?”.

1. How does this fund work?The payments you make into your policy (‘the premiums’) go into this fund. Our money is pooled togetherwith the premiums of the other policyholders who invest in this fund.We invest this fund in a variety of different types of investments which we describe in the section ‘How is thisfund invested?’. The investment return consists of income from investments and profits and losses whichincrease or reduce the value of this fund.We use this fund to pay the policy benefits to the policyholders who have paid premiums into this fund. Wealso pay our running costs and tax from this fund and an amount each year to our shareholders.Shareholders are there to provide support to this fund, should it be needed (please see the section “Whatabout the shareholders?”).1

2. What are my benefits?Bonds are ‘whole of life’ policies that do not have a maturity date – they pay out only on death orsurrender. They were designed to be viewed as medium to long term investments.Your premiums are used to buy with-profits units in this fund. The death benefits payable are: the value at that time of the units you have purchased under your policy, including any growth in the valueof units through the addition of annual bonus; and a final bonus which we may add.We guarantee a minimum amount that you will get back from your policy, but the guarantee only applieswhen the death claim payment is made.The guaranteed minimum amount is the value of the with-profits units bought with your premiums, plus anyannual bonus units we add over the life of the policy.An extra 1% of the value of the with-profits units is also payable on death under some single premium bonds.For some single premium bonds, we allow policyholders to choose to make regular partial withdrawals, up tocertain limits, and the value of the units cancelled (including any final bonus) will be paid on such withdrawals.MVRs do not apply to regular withdrawals up to certain limits where you surrender (cash in) an agreedquantity of your units at fixed intervals to provide you with an income.If you decide to surrender (cash in) your policy the benefits payable are similar to those we pay on death,although a market value reduction (MVR) may apply.What is a market value reduction (MVR)?There may be times when, looking back, we have added more in annual bonuses over a period than the profitwe were able to earn. For such policies, we will usually reduce the amount we would pay if the policy wassurrendered (cashed in) so that we only pay out the profits we have actually earned. This reduction is calleda market value reduction (MVR).We do this is to ensure that: the surrender or transfer value is not unfairly higher than the policy’s share of the underlying value of thisfund’s assets; and the interests of the remaining with-profits policyholders are protected.It would be unfair to the policyholders remaining in the with-profits fund if we paid some policyholders morethan we had earned, as this would mean that other policyholders receive less than was due to them.We may apply the MVR: to partial surrenders or transfers; on early retirements; or when with-profits units are switched to buy units in a unit-linked fund.2

3. How do you decide what bonuses to pay?We aim to pay all policyholders their fair share of the ‘profits’ this fund has earned over the time they haveheld their policy. We consider the build-up of premiums when deciding what a fair share is.The build-up of premiums (sometimes called the ‘asset share’) takes into account the policies' share of: this fund’s investment performance; our running costs, which include our administration costs, investment costs and commission; the tax we have to pay; the shareholders' share of profits (see the section “What about the shareholders?” for more details); charges for death benefits; charges for guarantees; and any distribution of surplus money (see below).Annual BonusWe aim to add an annual bonus each year at such a level that the projected value of the units is equal to theprojected build-up of premiums in five years from the time of adding the bonus. A minimum rate of annualbonus is set each year and the level of annual bonus declared the following year cannot be less than theguaranteed minimum amount.Latest bonus informationThe latest bonus information is available here.Surplus moneyThere is more money in the fund than we expect to pay out in claims. Some of this surplus money is used toprotect the fund against unexpected shocks, for example a fall in the value of the fund’s investments.However, the remainder can be released and used to increase the final bonuses and hence the amounts wepay out to policyholders.The amount we are able to add to policy values will be regularly reviewed and may increase or decrease, andcould even be removed entirely. For the latest information on the amount of surplus money being distributedplease visit here.How do you calculate a market value reduction (MVR)?If you surrender with-profits units at any time other than a guarantee date, we compare the build-up ofpremiums with the value of the units.Where the build-up of premiums is less than the value of the units then we may apply a market valuereduction (MVR), which reduces the value of each with-profits unit.3

4. Why might payouts differ from projections given when I bought mypolicy?When most of our with-profits policies were sold, investment returns had for many years been much higherthan they are now. This was partly because of the high rates of inflation in the 1970s and 1980s. Theprojected payouts on these policies assumed that these high rates of inflation and investment return wouldcontinue. Despite recent small increases in interest rates, we still expect interest rates to remain athistorically low levels over the next few years.This means that actual payouts will be lower than were projected when policies began. Also, projections wegive now on policies still to pay out are generally lower than before, as not only do we take into account lowerearned returns, we also anticipate lower returns in future.Payouts on with-profits policies reflect the profits (including investment performance and other profits andlosses) made by the with-profits fund over the lifetime of the policy. Profits earned by the fund have been lessthan those needed to produce the projected payouts. A major contributor to this has been the need to setmoney aside to ensure that we can pay the future benefits guaranteed under our policies. This has restrictedthe amount we have been able to invest in higher risk investments such as equities (company shares) andproperty which potentially provide higher returns.Many of our with-profits pension policies also have a guarantee, that the policy value at retirement can beconverted into a pension at a rate which is currently more favourable than insurance companies generallynow provide.5. How is this fund invested?We invest this fund in a mix of assets such as company shares, property, bonds (types of loan usually issuedby the Government or companies) and cash deposits.How much we put into each type of investment will change over time. We aim to make sure that this fund canalways meet the promises we made to policyholders. Subject to this, we aim to get the highest possiblereturn while balancing this with the degree of risk being taken. We currently hold some higher riskinvestments which we expect to provide a higher return, such as company shares and property. The rest arelower risk investments such as bonds and cash. We review our investment strategy regularly, taking accountof a variety of considerations, including our approach to responsible investment. Responsible investment isthe practice of incorporating environmental, social and governance considerations into investment decisions.At the moment, we hold different mixes of assets for different groups of with-profits policyholders. For policieswith guaranteed benefits that are high compared to the underlying value, we will invest in fewer higher riskinvestments. For some policies where the guaranteed benefits are particularly high, we will invest solely inlower risk investments. For policies that do have exposure to higher risk investments, we will reduce theproportion of these higher risk investments as the policies get closer to the expected date of death or, ifapplicable, the date at which it is guaranteed the policy can be surrendered with a limited MVR. We use therelevant investment performance when working out underlying policy values.Any yearly statement that we send to you will include information about the mix of assets applying to withprofits policies in this fund.The latest asset mix applying to with-profits policies in this fund and the returns earned in recent years oninvestments underlying policies are available here.4