With-profits

With-profits Q&A

Has the with-profits concept been written off as non-transparent and delivering poor value to customers?
But that’s not what we read in the press. Surely there are better alternatives?
Isn’t this true of all companies? Why are AEGON Scottish Equitable’s with-profits prospects better?
Future expectations are all very well, but what have you added in the past from the estate?
But with-profits still isn’t transparent. How can we see what’s going on?
Those rules apply to all firms. Can you give me an example of something tangible that AEGON Scottish Equitable has done?
Haven’t all with-profits funds significantly cut their risks by selling equities – and at the wrong time?
If you’d sold equities before the equity market falls of the early 2000s, then your past performance figures would be good, but haven’t they always been below average?
Aren’t your with-profits funds exposed to falls in the property market and the well-documented liquidity issues around property sales?

Has the with-profits concept been written off as non-transparent and delivering poor value to customers?

Absolutely not, particularly within a company like AEGON Scottish Equitable.

But that’s not what we read in the press. Surely there are better alternatives?

There may be better alternatives, but you could well be giving up some valuable guarantees if you leave. It’s crucial that you consider this – some of our with-profits growth guarantees are as high as 5.5% a year.

Isn’t this true of all companies? Why are AEGON Scottish Equitable’s with-profits prospects better?

One of the key factors in the long-term performance of our with-profits funds is what we call ‘the estate’, which is the excess pot of money from all our with-profits funds. We don’t keep any of it as profit or pay it to shareholders – we share it out between all our with-profits investors. We expect, but can’t guarantee, that it’ll add around 1% each year to your final payout.

Future expectations are all very well, but what have you added in the past from the estate?

We increased underlying asset values (which bonuses are based on) from the estate by 0.75% in both 2004 and 2005, and 1.25% in 2006 and 2007.

But with-profits still isn’t transparent. How can we see what’s going on?

Transparency has improved substantially in recent years. Firms now have to set bonuses in accordance with the published Principles and Practices of Financial Management, take advice from a with-profits actuary and have their decisions reviewed by an independent body, such as a with-profits committee.

Those rules apply to all firms. Can you give me an example of something tangible that AEGON Scottish Equitable has done?

With-profits payouts are a combination of guaranteed benefits, yearly bonuses, final (also known as terminal) bonuses and/or market value reductions (MVRs). In line with the financial services industry, we traditionally reviewed final bonuses once or twice a year, and the amount depended on how many full years you’d been invested. This is still the case for a lot of firms and means that payouts can change substantially from one bonus declaration to the next, as well as on policy anniversaries. Since 2006, our final bonus rates (and MVRs) have changed every three months and vary according to the year and month you invested. This limits how much payouts can change between bonus declarations, and prevents any artificial changes around policy anniversary dates.

Haven’t all with-profits funds significantly cut their risks by selling equities – and at the wrong time?

Some of our funds do have low equity contents, but they also have high rates of guarantee (or were marketed as high fixed interest funds). In these cases, we reduced equity backing ratios (EBRs) ahead of the equity market falls in the early 2000s. Other funds with lower guarantees saw EBR reductions during the early 2000s, but EBRs in these funds have remained between 52.5% and 57.5% since 2003.

If you’d sold equities before the equity market falls of the early 2000s, then your past performance figures would be good, but haven’t they always been below average?

Absolutely not. Our with-profits payouts have been competitive for many years, and we expect them to stay that way.

Aren’t your with-profits funds exposed to falls in the property market and the well-documented liquidity issues around property sales?

None of our with-profits funds has any investment in property.