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We propose to add an enhancement to the underlying value of eligible LV= With-profits policies in the LV= Fund held by members.

This will be received when the policy comes to an end or money is received from it - either through partial withdrawals or an income. This enhancement would only be made should Vote 1 be approved by members, and is only for members holding an eligible LV= With-profits policy.

We expect the payout enhancement to be an additional 0.1% for every complete calendar year that the policy has been held since 1996 - up to when the policy ends or an income is received from it. This equates to 1% for each 10 years that the policy is held. If you cash in an eligible policy that you have held for less than a full calendar year, then you would not receive a payout enhancement. If members vote in favour of Vote 1, the same payout enhancement is expected to be paid regardless of the outcome of Vote 2.

This payout enhancement is in addition to the existing mutual bonus and exit bonus, which we intend to continue to award (consistent with current practice) in the future; with the aim of maintaining the current rates dependent on the financial position of the LV= Fund. The LV= Fund sits within the With-Profits Fund and contains the LV= With-profits business and liabilities.

If our proposals go ahead in full and the legal and regulatory processes have been completed, the uplift would be added to policy payouts whenever they occur.

The table below shows examples of the payout enhancement that could be paid

The exact percentage uplift will depend on how long the eligible policy has been held with LV=, determined in complete calendar years since 1996 up to when the policy ends or an income is received.

Number of complete calendar years a policy is held from start to finish5101520253035405060
Percentage uplift0.5%1.0%1.5%2.0%2.5%3.0%3.5%4.0%5.0%6.0%
Final policy value
£1,000£5£10£15£20£25£30£35£40£50£60
£3,000£15£30£45£60£75£90£105£120£150£180
£5,000£25£50£75£100£125£150£175£200£250£300
£10,000£50£100£150£200£250£300£350£400£500£600
£25,000£125£250£375£500£625£750£875£1,000£1,250£1,500
£50,000£250£500£750£1,000£1,250£1,500£1,750£2,000£2,500£3,000
£75,000£375£750£1,125£1,500£1,875£2,250£2,625£3,000£3,750£4,500
£100,000£500£1,000£1,500£2,000£2,500£3,000£3,500£4,000£5,000£6,000

Examples of the future LV= With-profits policy payout enhancements 

Example 1: Around three-quarters of all With-profits policies are Industrial Branch Whole of Life policies. These have an average value of around £2,000 and have been held on average for 26 years since 1996. The resulting payout enhancement is expected to be 2.6% or £52.

Example 2: Another popular product are our older unitised with-profits bonds (for example With Profits Growth Bond or With Profits Investment Bond). The average bond has a value of £30,000 and has been held on average for 21 years. In this situation, the payout enhancement is expected to be 2.1% or £630.

Example 3: With-profits members with Flexible Guaranteed Bonds (Series 1 and 2) and Flexible Guarantee Funds (Series 1) have on average £80,000 invested and have held their policies for an average of 6 years. Here, the payout enhancement is expected to be 0.6% or £480. 

For illustration purposes all figures are based on policy values at 31 December 2020 and claim is assumed to occur at 1 January 2022.

The payout enhancement will be reviewed periodically, and may go up as well as down and is not guaranteed. For example if the financial strength of the LV= Fund varies due to factors such as variation in policy longevity, annuity take-up rates, or higher contributions associated with the two staff defined benefit.

Implications for LV= With-profits policies where guaranteed benefits exceed the underlying value

Many LV= With-profits policies come with a guaranteed lump sum benefit on death or maturity, or a guaranteed income benefit. For some of these policies the value of the guaranteed benefit will be higher than the underlying value of the policy (including any payout enhancement). These policies would not benefit from the payout enhancement because they would already benefit from the higher amount of the guaranteed benefit.

The policies where this is most likely to occur are:

  • Ordinary branch conventional pensions sold before 1997, once they begin paying an income.
  • Maturity and death benefits on LV= conventional With-profits low cost endowments and LV= mortgage savings plans.
  • Death benefits on flexible whole of life policies.

We expect this to be the case now and in the future.