Mutual bonus questions

Answering your questions about our mutual bonus

What is a mutual bonus and why do we pay one?

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 trading businesses and allows us to give something back based on the overall financial performance of LV=.

How does the mutual bonus work?

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%. The decision to declare a mutual bonus for this group will still be based on factors like the performance of our trading businesses, 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 trading business). We won’t use the GI sale proceeds towards maintaining these bonuses.

If the LV= 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-profit 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.

How much is the 2019 mutual bonus worth?

The mutual bonus amounted to £27 million, based on the financial performance of Liverpool Victoria Financial Services Limited (LV=) in 2019. This means that since 2011 we have given back a total of £210million to eligible members. These members have benefitted from a mutual bonus uplift to their with-profits policies as follows:

LV= policy group Uplift 
Conventional with-profits policies and with-profits annuities
1.0%
Accumulating and unitised with-profits policies except Flexible Guarantee policies
1.0% 
Flexible Guarantee Bonds Series 1 and 2 / Flexi Guarantee Plan / Flexible Guarantee Funds Series 1
0.5%
Flexible Guarantee Bonds Series 3 / Flexible Guarantee Funds Series 2 policies that have been in force for at least 12 months (i.e. that were in force on 31 March 2019)
0.2% 

The different enhancements, applied for 2019, reflect the contribution to the success of our trading business made by these different groups of policyholders.  The declarations from 2020 onwards will use some of the proceeds from the sale of the GI business for all the above policyholders, except for those with either a Flexible Guarantee Bond Series 3 or Flexible Guarantee Funds Series 2.

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

LV= policy group Addition 
Conventional with-profits policies and with-profits annuities
£100
Accumulating and unitised with-profits policies except Flexible Guarantee policies
£100 
Flexible Guarantee Bonds Series 1 and 2 / Flexi Guarantee Plan / Flexible Guarantee Funds Series 1
£50 
Flexible Guarantee Bonds Series 3 / Flexible Guarantee Funds Series 2 policies that have been in force for at least 12 months (i.e. that were in force on 31 March 2019)
£20 

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.

What mutual bonus has been declared in the past?

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

  Mutual bonus declaration  Uplift to LV= with-profits policy payouts 
2011 £19m  1.0%
2012 £21m 1.1% 
2013 £22m 1.0%
2014 £24m 1.0%
2015 £27m 1.0%
2016 £18m 0.5%
2017 £26m
  • LV= conventional with-profits policies
  • With-profits annuities
1.0% 
  • LV= accumulating and unitised with-profits policies (except Flexible Guarantee policies)
1.0% 
  • Flexible Guarantee Bonds Series 1 and 2
  • Flexi Guarantee Plan
  • Flexible Guarantee Funds Series 1
0.5%
  • Flexible Guarantee Bonds Series 3
  • Flexible Guarantee Funds Series 2
0.0%
2018 £26m
  • LV= conventional with-profits policies
  • With-profits annuities
1.0%
  • LV= accumulating and unitised with-profits policies (except Flexible Guarantee policies)
1.0%
  • Flexible Guarantee Bonds Series 1 and 2
  • Flexi Guarantee Plan
  • Flexible Guarantee Funds Series 1
0.5%
  • Flexible Guarantee Bonds Series 3
  • Flexible Guarantee Funds Series 2
0.2%
2019   £27m
  • LV= conventional with-profits policies
  • With-profits annuities
1.0%
  • LV= accumulating and unitised with-profits policies (except Flexible Guarantee policies)
 1.0%
  • Flexible Guarantee Bonds Series 1 and 2
  • Flexi Guarantee Plan
  • Flexible Guarantee Funds Series 1
 0.5%
  • Flexible Guarantee Bonds Series 3
  • Flexible Guarantee Funds Series 2
 0.2%
Total £210m  

The monetary figures shown in the above table are rounded.


When is the mutual bonus added to eligible policies each year?

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 Flexible Guarantee Bond, Flexible Guarantee Fund, 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.

 
Once you've declared a mutual bonus, can you ever take it away?

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 board believes it's appropriate to do so.

For policies who usually receive 1% or 0.5%, what factors could impact whether the mutual bonus is paid or not?

Our aim is to use the sale proceeds of the GI 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 are 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 rather than hide it in the small print.

I am a Flexible Guarantee Bond 3 /Flexi Guarantee Plan/Flexible Guarantee Funds 2 policyholder, am I eligible for mutual bonus?

Yes, 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 trading business, and other factors. We won’t use the proceeds of the sale of GI.

I am an RNPFN policyholder. Why don’t I receive the mutual bonus?

RNPFN with-profits policies don’t contribute to LV=’s trading businesses. They 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’.

I am a Teachers Assurance with-profits policyholder. Why don’t I receive the mutual bonus?

Teachers Assurance Fund with-profits policies don’t contribute to LV=’s trading businesses. They 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’.

Why aren't all customers eligible to receive the mutual bonus?

As we are 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 trading business. Currently the mutual bonus is only paid to members with certain policies, but the board may decide to change the eligibility criteria in the future. 

I have a policy with a guaranteed benefit. Will I see the benefit of the mutual bonus on my policy?
We don’t add a mutual bonus to guaranteed benefits where they are a fixed amount. So if these are higher than the underlying value of your policy including the mutual bonus, then you won’t benefit from the mutual bonus. However you would be benefitting from the guaranteed benefit.
I have an LV= conventional with-profits pension policy that has a guaranteed yearly income benefit, and I’m already claiming an income from it. What will the mutual bonus mean for me?

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 are 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. 

 
I have an LV= conventional with-profits pension policy that has a guaranteed yearly income benefit, and I plan on claiming an income from it when I retire. What will the mutual bonus mean for me?

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. 

I have an LV= conventional with-profits pension policy that has a guaranteed yearly income benefit, and I plan on taking the benefits as a lump sum or transferring it to another provider. What will the mutual bonus mean for me?

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.

How do you see the scheme evolving?

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.

Want to find out more?

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