Standard Life With Profits - 4% Guarantee Growth Rate

Colin1980

Morning all, does anyone know how the 4% guarantee growth rate works within the SL With Profits Fund - cannot seem to get my head around it....does it operate like this:

Plan Value at start of year £100K
Plan Value at end of year - £103K (3% Growth)

Therefore missing out on 1K - do they add units or the final bonus to reflect 1K missing growth?

Thanks

Colin

MB15

There's info here, depending on the wrapper:

https://www.standardlife.co.uk/investments/funds/with-profits-information

e.g. https://lib.standardlife.com/library/uk/uwp1p.pdf

Says there's two bonuses a regular and final, that will increase the price of the units.

RossAllison

They state the 4% guaranteed bonus is before charges so if charges are 1% then 3% sounds about right

benjaminfabi

The 4% guarantee rate on SL with profits is a guarantee to increase the unit price by 4% per annum. There is no explicit deduction for costs from this rate.

If the unit price is 100p on 1 January 2020 then it will be 104p on 1 January 2021.

Many holders of SL pensions invested in the pension with profits fund also have rebates in the form of unit creation. For example, if you have 1,000 units and a policy that has a unit creation bonus of 0.2% pa, then you will have 1,002 units at the end of the year (this is typically credited monthly).

This means that you can have an effective guarantee growth rate of more than 4%, because every additional unit also gets the 4% increase.

It is an incredibly valuable contract, especially if it is surplus to the client's income needs.

This extract is from p6 of the attached PPFM. P75 has a a table of all the products and the fund type they're invested in. P77 has a table of the guaranteed minimum unit price growth rates for every variation of the WP fund)

• Unitised Sub-type I. For Unitised Sub-type I policies unit prices in any sub-fund
  (excluding the Pension Inflation Plus Fund, see Section 3.2.2.2) grow in line with the sum of:
  • the applicable guaranteed minimum growth rate contractually agreed in relation to the units of
  that sub-fund (either 0%, 3% or 4% a year); and
  • any (additional) bonus growth rate in relation to units of that sub-fund for that
  class of policy (subject to a minimum of 0% a year).

The unit value of a policy (by which we mean the number of units allocated at the time multiplied
by the appropriate unit bid price) is guaranteed as a minimum payout in certain circumstances,
as described in the relevant contractual terms and conditions.