Answering your questions about our mutual bonus

The mutual bonus scheme was introduced in 2011. It was designed to reward and recognise eligible members for their support of the development and growth of our business and allows us to give something back based on the overall financial performance of LV=.

Each year the LV= Board decides whether to declare a mutual bonus and, if so, the level that will be awarded. From 2020, for members who have recently received mutual bonuses of 1.0% or 0.5%, the level of future mutual bonuses will be based on things such as; what funds are still available, how investment markets perform, the number of active members who are eligible to receive it and our current and projected financial strength.

This isn’t the case for our newer members, specifically those who hold Flexible Guarantee Bonds Series 3 or Flexible Guarantee Funds Series 2 policies, which since 2018 have received a mutual bonus of 0.2%. For these policies, and our newer Smoothed Managed Funds Bond and LV= ISA, the decision to declare a mutual bonus for this group will still be based on factors like the performance of our business, smoothing profits and losses and our current and projected financial strength and the contribution made by various groups of members (for example risks they take in supporting the development and growth of LV=’s business). We won’t use the General Insurance sale proceeds towards maintaining mutual bonuses for these bonuses.

If the Board decide that it’s right to give a mutual bonus, after consulting with the With-Profits Committee and With-Profits Actuary, a percentage uplift will be applied to the value of eligible with-profits policies. The decision to give a mutual bonus is at the sole discretion of the Board and is not guaranteed.

Members, or their beneficiaries, will be able to see the benefit of mutual bonuses when either their policy matures, is surrendered or pays out a death claim. So the longer a policy is in place the bigger the benefit could be. If a member has an annuity with us they will instead see the benefit of the mutual bonus through an increase in their regular income.  However policyholders won’t see the benefit of a mutual bonus for policies where guaranteed benefits - or the underpin on conventional pension benefits paid as lump sums - are payable, as mutual bonus is not added to these benefits.

The mutual bonus for 2021 amounted to £28million. This means that since 2011 we have given back a total of £265million to eligible members. These members have benefitted from a mutual bonus uplift for 2021 to their with-profits policies as follows:

The declarations from 2020 onwards use some of the proceeds from the sale of the General Insurance business for all the above policyholders, except for those with either a Flexible Guarantee Bond Series 3 or Flexible Guarantee Funds Series 2. For these, the mutual bonus declaration is based on factors like the performance of our business, smoothing profits and losses and our current and projected financial strength and the contribution made by various groups of members.

The declaration will typically add the following amounts of money to eligible with-profits policies and with-profits annuities assuming they are currently worth £10,000:

Mutual bonuses will form part of the total amount paid out either when the policy matures, pays out a death claim or is cashed in, except for eligible annuitants who will receive an increase in their income. For most with-profits policies it is added by increasing any final bonus or top-up bonus (or reducing any Market Value Reduction)

However policyholders won’t see the benefit of a mutual bonus for policies where guaranteed benefits - or the underpin on conventional pension benefits paid as lump sums - are payable, as mutual bonus is not added to these benefits.

Here is a summary of our mutual bonus declarations since it was introduced.

The monetary figures shown in the above table are rounded.

If the LV= Board decide to award a mutual bonus, we’ll usually apply the bonus to the value of eligible policies on 1 March of that year. Exceptions to this are outlined below by policy type:

• 1 February for With Profits Pension Annuity policies
• 1 April for LV= ISA, Smoothed Managed Funds Bond, Flexible Guarantee Bond, Flexible Guarantee Funds, Flexi Guarantee Plan, All-In-1 Investment Bond and Guaranteed Capital Bond policies
• 1 May for Pension Income Plus Annuity (PIPA) policies

The mutual bonus will be part of the amount payable when the policy either:

• matures;
• pays out on death; or
• is cashed in.

This doesn't apply to eligible annuitants who will get their mutual bonus as an increase in their income.

However policyholders won’t see the benefit of a mutual bonus for policies where guaranteed benefits - or the underpin on conventional pension benefits paid as lump sums - are payable.

Yes, but we'd only do this in exceptional circumstances, for example if we needed to protect our capital position. Also the mutual bonus could be reinstated if the LV= Board believes it's appropriate to do so.

Our aim is to use the sale proceeds of the General Insurance business to maintain the mutual bonus so it will be protected from most business risks. The actual rates we declare will be based on what funds are still available, how investment markets perform, the number of active members who are eligible to receive it and our current and projected financial strength.

We must protect LV= and look out for the interests of all our members. Therefore, if in the unlikely event that our  financial strength was to reduce to an unacceptable level, the mutual bonus could drop below the levels we're aiming for, or be stopped, and past mutual bonus we’ve given could be removed. We don’t think this is likely to happen, but we want to be up front about the possibility.

Yes, you’re eligible, but you must have had your policy in place for a whole 12 months before any mutual bonuses will be added to the policy value. Any mutual bonuses awarded will rely on the performance of our business, and other factors. We won’t use the proceeds from the sale of the General Insurance business.

For those who hold a Smoothed Managed Funds Bond or LV= ISA that have been converted from our non-profit to with-profits funds, after the initial start date, no mutual bonus is declared until 12 months from the date the conversion took place and not from the start date of the policy.

RNPFN with-profits policies are in a separate, ring-fenced fund. Eligible policyholders in the RNPFN Fund may benefit from the distribution of the inherited estate of the RNPFN Fund in the form of a ‘terminal bonus enhancement’.

Teachers Assurance Fund with-profits policies are in a separate, ring-fenced fund. 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’.

As we're a mutual company, we're owned by our members (who may hold either with-profits or non-profit policies), in much the same way as a plc is owned by external shareholders. A member is a person who holds life insurance, protection, investments or retirement policies with us. For more details see members section.

The mutual bonus is designed to reward eligible members for the risks taken to support the company and growth of our business. Currently the mutual bonus is only paid to members with certain policies, but the LV= Board may decide to change the eligibility criteria in the future. 

If you have an LV= with-profits product that allows withdrawals, the withdrawals are paid by cancelling (or surrendering) some of the units you have purchased with your policy. Whether mutual bonus is paid out on a partial withdrawal depends on the type of product held.

For LV= Flexible Guarantee Bond, Flexible Guarantee Funds, Flexi Guarantee Plan, All-In-1 Investment Bond, and Guaranteed Capital Bond, Smoothed Managed Funds Bond and LV= ISA policies no mutual bonus is included in the partial withdrawals paid out. For these products any mutual bonus is only paid out when the policy ends. 

For other LV= unitised with-profits products eligible for mutual bonus and that allow withdrawals, the mutual bonus will reduce the number of units we need to cancel for your partial withdrawal. You still receive a fixed withdrawal amount.

You won’t notice any difference to your income due to the mutual bonus. This is because we don’t add a mutual bonus to guaranteed benefits we're paying.

We aren’t paying any more than your guaranteed benefits, as the amount of money you’ll receive from your annuity is more than the value of the investments it’s paid from, and this is likely to continue. 

You won’t notice any difference to the income due to the mutual bonus. This is because we would begin paying guaranteed yearly income benefits, and we don’t add a mutual bonus to these types of benefits. 

We aren’t paying any more than your guaranteed benefits, as the amount of money you’ll receive from your annuity is more than the value of the investments it’s paid from, and this is likely to continue. 

It is likely that there will be no difference in value due to the mutual bonus. While we would apply the mutual bonus to the underlying value of your policy, you are likely to benefit (from age 50) from an ‘underpin’ which is paid if it is higher than the underlying value. The ‘underpin’ is based on the commuted value of your guaranteed yearly income, and we don’t add mutual bonus to this.

In 2019 we completed the sale of the General Insurance (GI) business. Mutual bonus declarations from 2020 onwards will use some of the proceeds from the sale of the GI business for certain policy types, and consider how many eligible members are entitled to receive it in any one year.

This is explained in more detail on our dedicated webpage. Any mutual bonus and the level to be awarded continues to be at the sole discretion of the LV= Board.