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Catch up with the latest press releases from LV=

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LV= With Profits Performance

Press release: 20/02/2008


  • With-profits fund return of 5.7% achieved in 2007.

  • Market Value Reductions (MVRs) only apply to a small number of with-profits bonds taken out over a nine month period in 2000-2001.

  • Latest Cazalet Consulting With-Profits ratings give LV= ten out of ten for financial strength, investment freedom and flexibility, and bonus paying ability.

  • £21,000 surplus currently being paid on a maturing 20 year £50,000 mortgage endowment policy. Unequivocal mortgage endowment guarantee maintained.

  • An estimated £100m in bonuses to be added to with-profits policies.

  • Effective return over the year of 9.9% for a 10-year life policy and 12.5% for a 25-year life policy.

  • A £50 a month 10-year policy maturing 1st March 2008 will pay out £7,396, and a 25-year policy will pay out £61,625.

  • 25 year payouts are higher than major proprietary firms (see table below).

  • With-profits pension annuity top-up bonus rates increased.


Ian Blanchard, With-Profits Actuary for LV= said: "The achievement of a 5.7% fund return over 2007 is a very creditable performance, and has enabled us to add a smoothed return of over 12% to our traditional with-profits policies. We are also delighted to provide all of our mortgage endowment policyholders with the peace of mind of knowing that any mortgage amount covered by their policy will be paid off. As a mutual organisation, with no shareholders to pay, providing this kind of added value benefit to our members comes naturally to us.

"So far in 2008 the equity markets have been extremely volatile, with one of the largest FTSE-100 one day falls on record. Our policyholders can rest assured that because we smooth investment returns – a key feature of with-profits – much of these day-to-day fluctuations will be ironed out. In fact, thanks to the more positive equity performance of recent years, if returns were flat over the next two years, our with-profits policyholders would still have positive annual returns added to their policies during 2008 and 2009."

Mortgage Endowment Guarantee:

The UK's largest Friendly Society* LV= provides an unconditional Mortgage Endowment Guarantee (originally made in 2000) which means that all with-profits mortgage endowment policies paid to full term are guaranteed to meet any mortgage amount covered by the policy.

Currently a 20 year endowment policy for a £50,000 mortgage is yielding £71,388, a £21,388 surplus, whilst a 15 year policy is achieving a £5,136 surplus.


Low cost endowment maturity values as at 1st March 2008

Policyholder: Male, aged 30 next birthday at entry

15-year endowment
Start Date 02/03/1992

Mortgage Amount £50,000
Maturity Value £55,136

Surplus £ 5,136

20-year endowment
Start Date 02/03/1987

Mortgage Amount £50,000
Maturity Value £71,388

Surplus £21,388

It is important to remember past performance is not a guarantee of future returns as these depend on bonuses yet to be declared.


LV= outperforms proprietary providers:

LV= outperforms proprietary providers: LV= policyholders with maturing 25-year conventional with-profits life policies are at least £14,580 (31%) better off than similar policyholders with the major proprietary with-profits providers who have announced their bonus declarations so far this year.


Provider

Payout (£50pm, male, 30nb)

LV= members better off by

LV=

£61,625

-

-

Norwich Union

£47,045

£14,580

31.0%

Scottish Widows

£40,685

£20,940

51.5%

Standard Life

£38,970

£22,655

58.1%

Friends Provident

£36,425

£25,200

69.2%

It is important to remember past performance is not a guarantee of future returns as these depend on bonuses yet to be declared.


With-Profits Pension Annuities (WPPA):

WPPAs give annuitants potential for increases to income via regular bonuses, and also top-up bonuses which are not fixed. LV= has recently increased all of its WPPA top-up bonuses.

Cazalet Consulting 10/10 rating:

The LV= with-profits fund was rated ten out of ten in the Cazalet Consulting With-Profits Ratings 2007 and has experienced another strong year of performance, underpinned by active management and the significant exposure to UK and global equities that the society's level of financial strength allows.

Equity Ratio and Free Asset Ratio:

As at 31st December 2007, the LV= with-profits fund had a 60.5% investment in equities and a further 14.6% in property i.e. over 75% in growth assets. At the end of 2006 the fund had a realistic Free Asset Ratio of 19.7% compared with an industry average of 5.9% (Source: Ernst & Young Capital & Solvency Review 2006, which is the latest such review available).

Market Value Reductions (MVRs):

Market Value Reductions (MVRs) apply to only a small number of with-profits bonds taken out over a nine month period in 2000-2001. The maximum MVR applying is a 2.1% reduction in value. In addition, terminal bonuses on with-profits bonds have been increased, with a 10-year bond paying a terminal bonus of 33%.

Comparison with other investments:

The surrender value of a LV= Flexible Investment Bond invested on 31st December 1997 outperformed the average of funds in three comparable ABI sectors, with comparable risk profiles, over each of the last three years.

Value as at 31/12/2005

Value as at 31/12/2006

Value as at 31/12/2007

UK average Distribution Life Fund £

£16,015

£16,912

£16,849

UK average Cautious Managed Life Fund £

£15,442

£16,458

£16,460

UK average Balanced Life Fund £

£15,089

£16,447

£17,191

LV= Flexible Investment Bond £

£16,028

£18,251

£20,432

Notes to table: Lump sum of £10,000 invested at 31/12/1997. Surrender values shown. Source: Lipper Hindsight.

It is important to remember past performance is not a guarantee of future returns as these depend on bonuses yet to be declared.


Notes:

*Association of Friendly Societies Yearbook 2006/2007. Total Net Assets.

1. Asset Allocation

With-profits fund asset allocation

Asset Class

End 2007

Equities

60.5%

Property

14.6%

Fixed interest

19.8%

Cash / other

5.1%

Total

100%


2. Effective returns over the last year

Policy duration

Policy Description

Maturity value as at 1st March 2008

Surrender/ transfer value a year ago

Premiums paid during the last year

Effective return over the year

25 years (a)

Ordinary Branch Endowment

£61,625

£54,228

£600

12.5%

25 years (b)

Industrial Branch Endowment

£6,822

£5,712

£65

18.2%

25 years (c)

Pension Policy

£164,056

£140,629

£2,400

14.8%

It is important to remember past performance is not a guarantee of future returns as these depend on bonuses yet to be declared.


Unitised products

Policy duration

Policy Description

Maturity value as at 1st March 2008

Surrender/ transfer value a year ago

Premiums paid during the last year

Effective return over the year

10 years (a)

Endowment

£7,396

£6,155

£600

9.9%

10 years (c)

Pension Policy

£35,532

£28,367

£2,400

16.1%

It is important to remember past performance is not a guarantee of future returns as these depend on bonuses yet to be declared.


Unitised Bonds

Policy duration

Policy Description

Surrender value as at 1st March 2008

Surrender value a year ago

Effective return over the year

10 years (d)

Flexible Investment Bond

£18,354

£16,631

10.4%

5 years (d)

With Profits Growth Bond

£14,254

£12,715

12.1%

4 years (d)

With Profits Growth Bond

£13,881

£12,574

10.4%

3 years (d)

With Profits Growth Bond

£12,867

£11,665

10.3%

2 years (d)

With Profits Growth Bond

£11,554

£10,489

10.2%

1 year (d) (e)

With Profits Growth Bond

£10,205

N/a

2.1%

Notes:

a: Regular premium £50 per month, male aged 30 next birthday at entry.
b: Regular premium £5 per four week period, male aged 30 next birthday at entry.
c: Regular premium £200 per month, male retiring at age 65.
d: Single premium £10,000, male aged 30 exact at entry.
e: £10,000 Premiums paid during the last year
The effective returns in the table above allow for the premiums paid over the last year.

It is important to remember past performance is not a guarantee of future returns as these depend on bonuses yet to be declared.


3. With-Profits final bonus rates and payouts 2008

Conventional products

Policy duration

Policy Description

Payout

Terminal Bonus Rate

Equivalent annual rate of return over the full term

25 years (a)

Ordinary Branch Endowment

£61,625

96.9%

9.9%

25 years (b)

Industrial Branch Endowment

£6,822

96.9%

10.1%

20 years (c)

Pension Policy

£164,056

0%

11.0%

It is important to remember past performance is not a guarantee of future returns as these depend on bonuses yet to be declared.


Unitised products

Policy duration

Policy Description

Payout

Terminal Bonus Rate

Equivalent annual rate of return over the full term

10 years (a)

Endowment

£7,396

17.9%

4.1%

10 years (c)

Pension Policy

£35,532

21.9%

7.6%

It is important to remember past performance is not a guarantee of future returns as these depend on bonuses yet to be declared.


Unitised Bonds

Policy duration

Policy Description

Payout

Terminal Bonus Rate

Equivalent annual rate of return over the full term

10 years (d)

Flexible Investment Bond

£18,354

33.0%

6.3%

5 years (d)

With Profits Growth Bond

£14,254

30.8%

7.3%

4 years (d)

With Profits Growth Bond

£13,881

34.5%

8.5%

3 years (d)

With Profits Growth Bond

£12,867

28.7%

8.8%

2 years (d)

With Profits Growth Bond

£11,554

18.7%

7.5%

1 year (d)

With Profits Growth Bond

£10,205

7.4%

2.1%

Notes:

a: Regular premium £50 per month, male aged 30 next birthday at entry.
b: Regular premium £5 per four week period, male aged 30 next birthday at entry.
c: Regular premium £200 per month, male retiring at age 65.
d: Single premium £10,000, male aged 30 exact at entry.

It is important to remember past performance is not a guarantee of future returns as these depend on bonuses yet to be declared.


4. Annual bonus rates on currently sold products

Product

Bonus rate

With-Profits Pension Annuity (WPPA) – Series 1 & 2

3.50% pa

With-Profits Pension Annuity (WPPA) – Series 3

2.80% pa

With-Profits Income Bond

3.75% pa

Tax Free Savings Plan

3.25% pa

With-Profits Growth Bond, Max

2.25% pa

Personal Pensions

3.00% pa

Life ISA

1.45% pa

Flexible Savings Plan – Series 2

2.75% pa

Note:

The above bonus rates are effective from 01/03/2008, except for the WPPA where the rate is effective from 01/02/2008


5. Annual bonus rates on previously sold products

Product

Bonus rate

Flexible Investment Bond, Mutual Investment Bond,
Family & Legacy Fund, Regular Savings Plan,
Flexible Savings Plan – Series 1

2.75% pa

Flexible Whole Life Plan

4.78% pa

Appropriate Personal Pension Plan

11.88% pa

With Profits Investment Bond, Lifetime Bond

2.25% pa

With-Profits Pension Annuity (WPPA) – Series 1 & 2

3.50% pa

Ordinary Branch conventional life

3.00% pa

Ordinary Branch conventional pensions (other than WPPA)

0.00% pa

Industrial Branch conventional

1.50% pa

Note:

The above products are closed to new business.


6. How bonus rates are determined

LV= is committed to managing annual and final bonuses so that policyholders receive a fair return, whether at policy maturity or when surrendering earlier.

Unitised with-profits

The Principles & Practices of Financial Management from LV= state that the unitised with-profits annual bonus rate is targeted at 50% of the expected future investment return, less tax and charges. Paying higher annual bonuses would restrict levels of equity investment and would be likely to damage longer term returns.

Conventional with-profits

Annual bonuses are set taking into account current and prospective gilt yields for the average outstanding term of the policies and bonuses previously added. Annual bonuses add to policy guarantees, which then need to be matched by fixed interest investments. Therefore, higher annual bonuses would restrict levels of equity investment and would be likely to damage longer term returns.

It is important to remember past performance is not a guarantee of future returns as these depend on bonuses yet to be declared.