Mutual bonus

Giving back to our members with a mutual bonus

We’ve awarded a total of £309 million in mutual bonuses to eligible members

As a mutual we’re run for the benefit of our members. We’re committed to serving our members and creating long-term value for them. Our aim is for eligible members to share in the success of our business – we’ve been doing this since 2011 through the LV= mutual bonus.

It’s important our members are aware how we declare a mutual bonus, why it might go up, down or stay the same each year and what factors will impact the rate. 

  • The mutual bonus is our way of rewarding eligible with-profits members for their support of the development and growth of our business. 
  • If a mutual bonus is awarded, the value of an eligible policy will increase by a percentage agreed by our Board and dependant on a number of factors. More information on these can be found below.

Information about our other member bonus – the exit bonus


Our Principles and Practices of Financial Management (PPFM)

The decision to award a mutual bonus needs to be made in a way that is fair for both current and future generations of members.

It is important that we continue to award mutual bonuses in a sustainable way and that our members are aware how we declare a mutual bonus. This includes how the Board determines if a mutual bonus will be awarded. If a mutual bonus is awarded, we want to be clear on the factors that drive whether it might go up, down or stay the same each year. 

The level of mutual bonus that is awarded continues to be at the full discretion and freedom of the LV= Board. The decision to award a mutual bonus is guided by the Board’s overriding responsibility to balance the need to deliver for members both today and in the future, against LV’s investment needs and projected financial strength of the fund. The Board could make adjustments or significant changes to the rates if circumstances require it. For example, if the current performance or capital position of the business differs materially from the business plan.

During 2023 we updated our Principles and Practices of Financial Management (PPFM) so that it is clearer for members what range of factors the Board considers in deciding whether to declare a mutual bonus and how the rate declared differs between policy groups.  

The PPFM references our internal Estate Distribution Policy which we use to set distributions from the LV= Inherited Estate*, such as a mutual bonus. The policy includes information about:

  • the eligibility for a mutual bonus,
  • the timing of when a mutual bonus is awarded,
  • considerations if a one-off bonus is awarded,
  • the factors used to set mutual bonus rates,
  • how mutual bonus rates differ between policy groups,
  • when an existing mutual bonus might be reduced or removed,
  • when the Estate Distribution Policy might be changed.

*The LV= Inherited Estate is made up of a range of profits and investment returns and is the excess of LV’s assets over all its liabilities. A full list of what makes up the LV= Inherited Estate can be found in our mutual model.

Key changes to our Principles and Practices of Financial Management (PPFM)

What is a PPFM?

This is the document that every company that offers with-profits business must have to set out the principles and practices (the beliefs and behaviours) they use to manage these investments. This is referred to as the ‘Principles and Practices of Financial Management’ (PPFM). It’s published on our website and as it’s a technical document, customer friendly versions are available there too.

What changed in 2023?

The PPFM is clearer for members what range of factors the LV= Board considers in deciding whether to declare a mutual bonus. In particular, that the decision to award a mutual bonus is guided by the Board’s overriding responsibility to balance the need to deliver for members both today and in the future, against LV’s investment needs and projected financial strength of the fund.

In addition, it better aligns the approach for sharing in the company’s past and current profits between policyholders, whilst maintaining their relative interests in the LV= Inherited Estate. This is done by setting ratios of the mutual bonus for different groups of policyholders to give very similar outcomes to before. Therefore, depending on the product, the mutual bonus rate for our older policies will be set at three or six times that for the policies which are open, or were recently open, to new business. 

Our Principles and Practices of Financial Management (PPFM) and customer friendly versions

Is my policy affected by these changes? 

The changes to how the mutual bonus is calculated does not impact your policy terms and conditions and you’ll still be looked after in the same way as you are today.

Our mutual model

We operate using a mutual model that looks after our members' money and delivers value to our with-profits members.

Our mutual model shows how premiums and investments from our members flow into the LV= Inherited Estate and what benefits and returns it generates, including a mutual bonus which may be paid to eligible members. 

Below is our mutual model. Its design aims to explain how we do this and has been informed by recent member research via our LV= Member Community. 

 

Mutual model diagram 

Definitions:

LV= Policyholder Fund 

The primary asset management of the fund is currently undertaken in partnership with BlackRock. They are responsible for the day-to-day management of the assets in the fund, operating in accordance with our investment strategy. Due to our range of both with-profits and unit-linked products, the LV= Policyholder Fund contains different mixes of assets for different products. We regularly review the performance of the asset manager. The fund also includes our non-profit risk-based insurance business.

LV= Inherited Estate 

This is made up of a range of profits and investment returns and is the excess of LV’s assets over all its liabilities. More about the LV= Inherited Estate can be found in the mutual model above. 

The LV= mutual bonus

How the mutual bonus works

Find out who’s eligible to receive the mutual bonus, how it’s calculated and when it’s paid.

Who’s eligible

Our members hold a variety of products with us including investments, life insurance, income protection and retirement income solutions. 

Members will either be with-profits or non-profit members depending on what product they hold with us. Learn more about the differences between these two product types and view our full list of products.

Certain with-profits policies directly invest in, and support, the development and growth of our business. These policies are eligible for the mutual bonus: 

  • Flexible Guarantee Bonds Series 1 & 2
  • Flexible Guarantee Bonds Series 3
  • Flexi Guarantee Plan
  • Flexible Guarantee Funds (Flexible Guarantee Trustee Investment Plan) Series 1
  • Flexible Guarantee Funds (Flexible Guarantee Trustee Investment Plan) Series 2
  • Smoothed Managed Funds Bond Series 1
  • Smoothed Managed Funds Pension Series 1
  • Smoothed Managed Funds ISA Series 1
  • Smoothed Managed Funds Trustee Investment Plan Series 1
  • LV= accumulating and unitised with-profits policies (other than above)
  • LV= conventional with-profits policies
  • LV= ISA
  • With-profits annuities

Other bonuses, for example regular and final bonuses, are paid to eligible members based on their individual policy terms and conditions. For information on the bonuses you receive, please take a look at your annual statements.

RNPFN with-profits policies are in a separate, ring-fenced fund within LV=. Eligible policyholders in the RNPFN Fund may benefit from the distribution of the inherited estate of the RNPFN Fund in the form of an enhancement to final bonus rates.

Teachers Assurance Fund with-profits policies are in a separate, ring-fenced fund within LV=. Eligible policyholders in the Teachers Assurance Fund may benefit from the distribution of the inherited estate of the Teachers Fund in the form of a ‘special bonus’.

The Board decides if a mutual bonus can be given

Our aim is to distribute our profits - via the mutual bonus - in a broadly stable and sustainable way, by maintaining our profitability and capital position. The LV= Board has full discretion and freedom when deciding to award a mutual bonus.

The decision to award a mutual bonus is guided by the Board’s overriding responsibility to balance the need to deliver for members both today and in the future, against LV’s investment needs and projected financial strength of the fund. The Board could make adjustments or significant changes to the rates if circumstances require it. For example, if the current performance or capital position of the business differs materially from the business plan. Any past mutual bonuses could be reduced or removed, though could be reinstated at a later date. 

The Board will always consult with the With-Profits Committee, With-Profits Actuary and Life Chief Actuary, taking into account how the business has performed against the business plan and what profits are available to distribute from that year.  

 

Mutual bonus declaration

The mutual bonus rates will be communicated alongside our financial results each year.

The rates will differ between eligible with-profits policies. The reason for this is because the level of investment, to support the development and growth of our business, and the risk associated with this depends on the type and nature of the with-profits policy. For example, if a mutual bonus is declared, our older policies (group 3) which have taken more risk will get the highest mutual bonus rate.

The different mutual bonus rates

If a mutual bonus is declared, the rate will differ between policy groups. 

Group 1 

  • All Smoothed Managed Funds unitised with-profits policies (which include LVFS’ with-profits policies open to new business)
  • Flexible Guarantee Bond Series 3
  • Flexible Guarantee Fund Series 2

Group 2 

  • Flexible Guarantee Bond Series 1 and 2
  • Flexible Guarantee Fund Series 1
  • Flexi Guarantee Plan

Group 3 

  • All other with-profits policies in the LVFS Fund.

The mutual bonus rates are currently as follows:

  • The mutual bonus rate for group 2 is three times the rate for group 1.
  • The mutual bonus rate for group 3 is six times the rate for group 1. 

The ratios are determined to provide members who were considered eligible to share in the proceeds of the sale of the LV= General Insurance business (groups 2 and 3) with a fair outcome, given the original intention of the announcement made in 2020 regarding the proceeds and how the LV= business has evolved since then. 

The ratios between the mutual bonus rates for different policy groups would be expected to remain stable over time, but the Board retains discretion to change the ratios after having consultation with the With-Profits Committee, With-Profits Actuary and the Life Chief Actuary.

How the mutual bonus is paid

If the Board declares a mutual bonus, we'll apply it to eligible with-profits policies as long as it’s been in place for 12 months. The amount will be a set percentage of the policy's value on the date the bonus is applied.

The mutual bonus will be paid to eligible members either when their policy matures, is cashed in or pays out on a death claim. However, for eligible annuity members, they'll receive an increase in their regular income, unless we're paying guaranteed benefits. A mutual bonus does not increase guaranteed benefits or the ‘underpin’ on conventional pension benefits.

The mutual bonus is not guaranteed to be paid each year and the amount can vary.

The 2023 mutual bonus was £20 million

For 2023 the LV= Board has awarded a discretionary mutual bonus of £20m (2022: £23m). We applied the mutual bonus by uplifting the payouts of LV= with-profits policies as follows:

Policy group Uplift % 2023* Uplift % 2022
LV= conventional with-profits, accumulating with-profits and unitised with-profits except Flexible Guarantee, LV= ISA and Smoothed Managed Funds products  0.90% 1.0%
Flexible Guarantee Bonds Series 1 and 2 / Flexi Guarantee Plan / Flexible Guarantee Funds Series 1  0.45%
0.5%
Flexible Guarantee Bonds Series 3 / Flexible Guarantee Funds Series 2 / Smoothed Managed Funds products / LV= ISA** 0.15% 0.2%
Policy group Uplift % 2023* Uplift % 2022
LV= conventional with-profits, accumulating with-profits and unitised with-profits except Flexible Guarantee, LV= ISA and Smoothed Managed Funds products  0.90% 1.0%
Flexible Guarantee Bonds Series 1 and 2 / Flexi Guarantee Plan / Flexible Guarantee Funds Series 1  0.45%
0.5%
Flexible Guarantee Bonds Series 3 / Flexible Guarantee Funds Series 2 / Smoothed Managed Funds products / LV= ISA** 0.15% 0.2%