HOW OUR WITH
PROFITS FUND WORKS
FOR POLICIES WHERE PREMIUMS
ARE USED TO BUY UNITS
02
How our With Profits Fund works
HOW OUR WITH
PROFITS FUND WORKS
For policies where premiums are used to buy units
Please take time to read this short booklet and keep it safe with your
policy literature.
Why should I read this booklet?
We explain how our With Profits Fund works and how that affects the
value of your investment.
03
CONTENTS
1. What is this booklet for?
2. How does our With Profits Fund work?
3. How do bonuses affect my investment?
4. What affects regular bonuses?
5. What affects final bonus?
6. What expenses do I pay for?
7. What if I stop my With Profits investment?
8. Where is my money invested?
9. What could happen to put profits at risk, and how are payouts affected?
10. How do I benefit from the Society’s financial strength?
11. Where can I find out more?
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How our With Profits Fund works
1. What is this booklet for?
We have written three booklets to explain how our With Profits Funds work.
}} This booklet covers policies where premiums are used to buy units in the
With Profits Fund.
The other booklets cover:
}} Conventional policies with benefits expressed in terms of a sum assured
or regular pension.
}} Medical Sickness Society policies purchased before our merger in July 1997.
2. How does our With Profits Fund work?
A proportion of your premium is used to buy units in the With Profits Fund.
This amount depends on how you have chosen to invest your money and on
the terms of your policy. These units represent your investment in the fund.
We aim to increase the value of your units based on the profits we make from
our investments.
However, to provide you with some protection from the risk of our investments
falling in value rather than rising, we guarantee that the unit price in this
fund will not fall. Also we guarantee to pay the full value of units in the
circumstances set out in your policy document. In this booklet, we refer to these
as ‘guaranteed events’. You may not always receive the full value of units at
other times (section 7).
If our investment growth is enough for us to afford to increase the value of
units, we add bonuses (section 3). Any bonuses you receive are also influenced
by other profits or losses we make. These usually have a smaller effect on
bonuses. They can arise from other policies like yours, or from other types of
policy, or different aspects of our business.
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3. How do bonuses affect my investment?
We usually add regular bonuses throughout the period of your investment. We
might also add a final bonus when you cash in your units. From time to time
we decide a regular bonus rate that will apply to your type of policy. We add
this bonus gradually, by increasing the unit price each day. We don’t promise to
add any regular bonuses. Once we add a regular bonus however, it increases the
value of units you are guaranteed to receive on a guaranteed event.
You can keep track of what regular bonuses have already been added. We send
you an annual statement, which shows how many units you hold and their value
at the statement date. Please bear in mind that further regular bonuses may
be added before you cash in your units, and you may also receive a final bonus.
We decide how much final bonus we are able to add when you cash in your units.
TOTAL WITH PROFITS VALUE PAYABLE ON A GUARANTEED EVENT:
}} number of With Profits units times the unit price at the date you cash
them in
plus
}} any final bonus amount, worked out at the same date.
Please see section 7 for what happens if you cash in your units at other times.
All policies guarantee the full value of units on death. Some policies guarantee
the full value of units at other times too, such as on diagnosis of a critical illness
or at the policy end date. Your guarantees are specified in your policy document.
It is important that you refer to this document to understand what guarantees
you have.
What you might get back in total from your policy
The value described above represents only your investment in the With Profits
Fund. You may have units in another investment fund. You may also get a higher
payout if you have protection benefits as part of your policy (such as life cover
or critical illness cover).
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How our With Profits Fund works
4. What affects regular bonus rates?
Regular bonus rates depend on past and forecast future investment growth,
with adjustments for other profits and losses. We cannot be sure how
much investment growth will definitely be achieved over the period of your
investment. Instead, we forecast the overall growth in order to set regular
bonus rates.
Once we’ve added regular bonuses they increase the value of units you would
receive on a guaranteed event. So we can’t take them away, even if our forecasts
turn out to be wrong. Because of this, we set regular bonuses prudently, using
only part of our total forecast growth. We aim to keep adding regular bonuses
fairly steadily.
If our investment forecasts improve enough, we will start adding higher regular
bonuses, even if the value of our investments have been falling recently.
Similarly, if our forecasts worsen enough, we will start adding lower regular
bonuses, even if the value of our investments has been rising recently. We
might have to stop adding regular bonuses altogether if poor future investment
growth is forecast, particularly if past investment growth has also been poor.
5. What affects the final bonus amount?
The amount of any final bonus depends mainly on stockmarket levels at the
time that you cash in your units relative to when you bought your units.
We look at the investment growth, or loss, we’ve had over the period of your
investment. We also consider our other profits or losses. We then calculate your
fair share of the fund (as explained overleaf) and compare it with the current
value of your units. Normally the fair share will be higher, allowing us to add
a final bonus.
If we worked out your fair share using our actual investment growth or loss,
you would be directly affected by short-term stockmarket fluctuations.
For example, it would be unfortunate if you paid money into the fund when
our investment values were temporarily high, only for them to fall again later.
Similarly, you could effectively lose out if you cashed in your units when our
investment values were temporarily low.
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One of the most important aims of our With Profits Fund is to help to shelter
you from such short-term fluctuations. So we calculate your fair share after
adjusting our investment growth or loss. This is called smoothing (see overleaf).
You are also protected if stockmarket levels are low at the time of your payout
on a guaranteed event. The minimum amount you will receive is the value of
your units including a regular bonus that has already been added.
THE AMOUNT OF YOUR FINAL BONUS IS SET BY:
}} Looking at what we can pay in total, based on your fair share of the fund
compared with
}} the value of your units at the date you cash them in. If this is greater,
you will not receive a final bonus.
Please see section 7 for what happens if you cash in your units at times
other than a guaranteed event.
Unlike many other insurers, we don’t have any shareholders, so over time
our policyholders will benefit from 100% of our investment growth and
other profits.
How we work out your fair share of the fund
We do a calculation which brings together the amounts you have invested
in the fund with your share of how much profit or loss has been made.
For most policies:
}} we take the amounts you’ve invested in the fund; then
}} deduct any money you’ve previously taken out of the fund; then
}} deduct charges; and finally
}} adjust for investment rises and falls, allowing for smoothing.
Charges will be deducted according to your policy terms and conditions.
Policies have an annual fund management charge to help us meet the costs
of running the fund, including overheads. Policies with protection cover may
have charges to help us meet the cost of any death or illness benefits.
08
How our With Profits Fund works
Your annual management charge includes the cost of the Ongoing Advice
Service (provided by Wesleyan Financial Services) if you have chosen to take
this service. We will cancel units in your policy to pay:
}} part of the annual management charge; and
}} any charges for protection benefits.
Adjustments for investment rises and falls are, for most policies, made
throughout the period money is held in the fund. We work this out based on
regular reviews of how our investments are changing in value. We take the
change in value since the last review, adjust it for smoothing and calculate your
fair share of it. Your share is based on how much money you’ve had in the fund
between the reviews. We allow for other profits and losses made by the fund
when doing these calculations.
How smoothing works
When we review how the value of our investments has changed, we aim
to reduce the effect of short-term fluctuations. We calculate a smoothed
investment return which is then used to determine your fair share of the fund.
This means that we apply smoothing when you pay your money into your
policy, as well as when you take your money out.
In periods of good investment growth we may keep some of the growth back.
What we have kept back would then be spent in periods of poor investment
growth, to cushion the fall in your share of the fund.
Smoothing can only adjust for short-term fluctuations because we need to
be able to balance out the good and bad periods. In the long term, on average
we aim to have paid out 100% of our actual investment rises and falls. So if
investment values remain low then payouts are likely to be lower. Similarly,
if investment values remain high, then payouts are likely to be higher.
We don’t specify a range for smoothing for these for smoothing for policies
where premiums are used to buy units.
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Value (including final bonus)
Smoothing illustration
Part of the investment
gain held back
Unsmoothed Value
Value supported using gains
previously held back
Smoothed Value
Time
The smoothed value reflects your total payout including any final bonus.
6. What expenses do I pay for?
Some of the charges deducted from your policy pay for the costs we incur
in selling and administering policies, plus a share of the overheads of
running Wesleyan.
When the costs to be covered are more or less than the charges deducted from
all such policies, we may adjust the investment growth credited to the fund to
allow for this.
7. What if I stop my With Profits investment?
You may choose to stop part or all of your With Profits investment.
For example, you may want to take money out of your policy. Or you might
wish to transfer to another company, or simply switch to a different investment
fund with us. Normally, if you cash in your units at any time other than a
guaranteed event, we will pay you what the fund can afford. This will be
based on your fair share, and we may also adjust the level of smoothing that
usually applies. Paying more than your fair share could mean lower payouts for
policyholders who keep their money in the fund.
10
How our With Profits Fund works
To avoid paying more than we can afford, we may reduce your final bonus or
apply a ‘Market Value Reduction’ (MVR) if investment growth has been poor
during the time that your money has been invested.
If an MVR is applied, you will not receive any final bonus, or the full value of any
regular bonus already added. With Profits is designed for long-term investment
and MVRs mean you could get back less than you paid in if you stop your
investment. This is particularly likely if stockmarket values are very low at that
time. However, you are protected if you stop your investment on a guaranteed
event, as we will not apply an MVR. This is a valuable benefit when stockmarket
values are low.
As well as MVRs, which are specific to a With Profits investment, there may
be general policy charges which apply when you cash in your units. For example,
we may charge for switches between funds. Also early withdrawal penalties
may apply where money is taken out of the policy or transferred to another
company. Details of these penalties are contained in your policy document.
Here is a summary of what happens if you cash in part or all of your
investment early:
WITH PROFITS VALUE PAYABLE ON A NON-GUARANTEED EVENT:
}} number of With Profits units you wish to cash in multiplied by the unit
price at the date you cash them in
plus
}} any final bonus amount, worked out at the same date
less
}} any Market Value Reduction (MVR) that applies at that date
less
}} any general policy charges that apply.
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8. Where is my money invested?
We invest your money in a range of investments with the emphasis very much
on assets which are expected to provide a return above of inflation such as
quoted company shares and commercial property, because With Profits is
designed as a long-term home for your money. They are the sort of investments
which normally have the best long-term growth prospects.
However, these investments also carry a risk. We cannot be sure they will grow
enough to meet our guarantees to policyholders. We may have guaranteed
to pay the full value of units, or something more where there are protection
benefits as well. Therefore, we also choose some lower growth investments,
like interest-paying bonds and cash deposits. These have lower risk and provide
more reliable growth, helping us to meet the guarantees.
We keep the mix between the higher and lower risk investments under review.
The mix mainly depends on the overall strength of the fund and the level of
guarantees made to policyholders. We need to avoid having so many higher
risk investments that the fund becomes unable to honour its guarantees in poor
investment periods.
However, because our fund is financially strong (section 10), we are able to have
a significant amount of higher risk investments. We expect to keep an above
average percentage of your money in such investments, compared with
other insurance companies. This means that the value of your investment can
fluctuate more from day to day than similar investments with other companies.
The guarantees set out in section 3 reduce the risk you take.
You can find current information on how the fund is invested by visiting our
website or by contacting us, as explained in section 11.
We invest in a very wide range of companies and properties. The aim of this
is to ensure that losses from any particular company or property could only
have a limited impact overall.
Our investments also include some holdings in subsidiary companies of the
Wesleyan Group, such as Wesleyan Bank, our unit trust management company
and our distribution company.
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How our With Profits Fund works
9. What could happen to put profits at risk,
and how are payouts affected? xxxxxxxxxx
What could happen to put profits at risk?
The main risk to profits arises from how our investments perform, as explained
in section 8.
Other things that might put profits at risk include:
}} the risks taken by those subsidiary companies of the Wesleyan Group in
which the fund invests
}} the risk of paying more protection claims than we’d estimated when setting
our premiums
}} the risk of paying pensions for longer than we currently estimate.
We seek to manage these risks so that, in the normal course of events, profits
are made, rather than losses.
To manage the risks of investing in subsidiary companies:
}} the Board has to approve the amount that will be invested in each subsidiary
company, based on the risks involved compared with the expected benefits;
}} approval will not be given unless the expected benefits are higher than
available from ordinary investments;
}} limits are placed on investments in new ventures;
}} the actual performance of each subsidiary company is then regularly
monitored to ensure that the expected benefits are being obtained.
To manage the risk of protection claims being higher than we’d estimated when
setting our premiums:
}} we regularly review our charges
}} we may pass on some of the risk under very large policies, or large groups of
policies, to what is called a ‘reinsurer’.
To manage the risk of paying pensions for longer than we currently estimate:
}} the premium rates we set are regularly reviewed
}} we allow for expected future improvements in life expectancy.
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Also, we have a separate fund containing policies sold by Medical Sickness
Society before our merger. If we needed to support that fund then our profits
would reduce. We have, though, taken steps to ensure that this would only be
required in very extreme circumstances.
How are payouts affected?
In the normal course of events, we aim to make sufficient profits to be able to
add bonuses to payouts. However, in the event of a sustained period of losses,
we would have to consider reducing future bonuses, possibly stopping them
altogether. This is because we would give priority to using the fund to honour
guaranteed payouts under the terms of each policy (including any regular
bonuses already added).
10. How do I benefit from the Society’s
financial strength? xxxxxxxxxxxxxxxxx
There is more money in the fund than we expect will be needed to pay out on all
of our current policies. This money represents our financial strength. This money
is not owned by any particular policyholders, but is used to give day‑to‑day
practical benefits to current and future policyholders.
We can:
}} meet guarantees even if our investments fall
}} keep an above average percentage of the fund in higher risk
investments, that we hope will allow us to pay higher bonuses
}} smooth out larger rises and falls in our investments when we
determine payouts
}} select investments which we believe will grow in the long term,
even if they are currently out of favour with other investors.
We see these benefits as the key components of what our With Profits Fund is
about – excellent growth prospects with the added protection of a smoothed
value of units.
14
How our With Profits Fund works
We are financially strong and need to preserve this strength so that the above
benefits can continue to be enjoyed by both current and new generations of
policyholders. We might use some of our strength to keep payouts high in poor
years, but we would aim to top it back up again in good years.
From time to time, we may decide to use some of our strength to finance
some costs, rather than charge them to policyholders directly. A key
consideration would be making sure our financial strength would remain
high enough afterwards.
Examples of such costs are:
}} some guarantee costs including, for Mortgage Endowment policyholders,
our guarantee to cover their mortgage
} large projects to develop our business strategy
} compensation paid to policyholders
} the cost associated with the Mutual Benefits Scheme, which provides
incentives to existing policyholders towards the purchase of insurance
products.
Our aim is to remain strong in the future. We monitor this strength and if it fell
too much, we would look at how to re-build it. We might have to make wider
changes to how we operate policies. For example, we might start to keep back
some of the profits we make, so as to re-build our strength.
We aim to continue to sell new policies. We may occasionally have to limit our
pace of growth to ensure that our overall guarantees don’t build up too quickly.
If we stopped selling significant numbers of new policies, we would have to
consider what to do with our financial strength in the long term, and develop
a suitable plan.
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11. Where can I find out more?
If you have any questions on the information in this booklet, or would like
further information, please contact your Financial Consultant. To book an
appointment with your Financial Consultant, please call 0800 058 2965.
Lines are open Monday to Friday, 8.30am to 6.30pm. and 9am to 2pm on
Saturdays.
Each year we publish an annual report which explains how we have acted to
manage the fund during the year. We have also written a more detailed guide
about how we run the fund. This is called ‘Principles and Practices of Financial
Management (Wesleyan Open Fund)’. You can get a copy of these by calling
0800 058 2965, or from our website www.wesleyan.co.uk.
For all your financial needs:
}} Savings and Investments
}} Retirement Planning
}} Life and Income Protection
}} Mortgages and Insurance
Please call: 0800 058 2965
Or visit: www.wesleyan.co.uk
If you would like this document in Braille, large print or
audio format, please contact 0800 058 2965.
For regular news, updates and information find us on social
media. Visit:
www.facebook.com/wesleyanAS
www.twitter.com/wesleyan
www.linkedin.com/company/wesleyan
Head Office
Wesleyan
Colmore Circus
Birmingham B4 6AR
Advice is provided by Wesleyan Financial Services Ltd.
‘WESLEYAN’ is a trading name of the Wesleyan Group of companies.
Wesleyan Financial Services Ltd (Registered in England and Wales No. 1651212) is
authorised and regulated by the Financial Conduct Authority and is wholly owned
by Wesleyan Assurance Society. Wesleyan Assurance Society is authorised by the
Prudential Regulation Authority and regulated by the Financial Conduct Authority and
the Prudential Regulation Authority. Incorporated in England and Wales by Private Act
of Parliament (No. ZC145). Registered Office: Colmore Circus, Birmingham B4 6AR.
Telephone: 0345 351 2352. Fax: 0121 200 2971. Telephone calls may be recorded for
monitoring and training purposes.
WG-EL-1-12/16