What are bonus rates?
None of our savings or investment plans pay an interest rate. What many of them do pay, however, are bonus rates.
Each year we assess the performance of our investments and adjust our bonus rates accordingly. Generally, when the investments perform well the bonus rates rise and vice versa.
There are two kinds of bonus rates – ANNUAL and FINAL.
For With-Profit plans, annual bonuses are declared and added each year; once added, annual bonuses cannot be taken away. These bonuses provide a gradual increase in the value of your plan over time as part of how your savings are designed to grow; we also typically pay a final bonus when you cash in your With-Profit plans that have been held over the medium to long-term.
How are they decided?
We invest all monies received in our With-Profits Fund. This fund is made up of various investments spread out to keep risk at an acceptable level while still aiming for potential growth, and to shield against large market fluctuations. We also practise ‘smoothing’, whereby we retain some of the high investment returns from the good years and use them to boost payments in any years when returns are lower.
When our investments perform well and produce a profit we aim to distribute this back to our members (this may also allow us to increase the annual and final bonus rates that are paid). Sometimes however, adverse market conditions (or a poor long-term outlook) may mean it’s necessary to lower the bonus rates.
Considerable detail as to how we manage the With-Profits fund and members’ benefits is given in the full Principles and Practices of Financial Management. A more ‘consumer friendly’ summary aimed at explaining the salient points can be found in How we manage the With-Profits Fund.
What will the Bonus Rates on my plan be?
We cannot state precisely what bonuses will be paid out in the future (these are decided every year upon receipt and analysis of our investment results) but we can say what has been paid out in previous years. It would be reasonable to consider these figures as typical, however it must be noted that – as with all financial matters – past performance is not always a reliable guide to future outcomes.
You can see the Past Performance of all our plans here.
