A guide to how we manage the
Communication Workers Fund

1. What does the guide cover?

This guide applies to all with-profits life and savings policies in the Communication Workers Fund (the CWF). In particular, it covers

• how your policy provides financial security for you and your dependants; and

• how our approach to managing the CWF affects the amount you get back from your policy.

Our approach can change from time to time, so we will write to you if we make alterations that may significantly affect your policy.

Extra information on children’s savings policies started before April 2001 is given in Section 8. Unless otherwise stated, references within this document to “death” in the case of children’s savings policies relate to the death of the child.

Note that this document is only a brief summary. Please see Section 9 which tells you where you can go for more detailed information.

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A with-profits policy is an investment policy that provides:

• the possibility of long-term growth for your savings (by long-term we mean more than five years);

• a guarantee that you will receive a minimum amount at the end of the policy, either at the maturity date of the policy or on your earlier death; and

• some protection against the ups and downs of investment markets (known as smoothing).

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Your premiums are added to all other policyholders’ premiums in the CWF. The fund is invested in a range of different assets such as company shares, property, bonds and cash (bonds are a type of loan to the Government or larger companies). The cost of handling your premiums and of managing your investment is paid for out of the fund. When your policy ends the money you receive is paid from the fund.

In deciding what investments to make, Forester Life adopts a balanced approach that aims to achieve steady long-term growth while avoiding excessive risks. In addition, we will vary the proportion we put into each type of asset over time depending on how we believe that asset is likely to perform in the future and the risks associated with investing in it.

Fairness to all policyholders in the CWF – asset shares

We aim to pay all policyholders their fair share of the value of the CWF when their policy comes to an end. This is known as your asset share. We calculate asset shares by taking into account:

• how much the fund has grown over the period you have contributed to it;

• what expenses have been incurred by the fund over this period; and

• the size of your contribution in relation to other people’s contributions.

In working out your share of the growth in the fund, we group policies of a similar type and length together. In working out what proportion of the total expenses to charge to your policy we may take into account the costs of any guaranteed benefits, such as the death benefit, provided for under your policy.

You should also note that the expenses incurred by the fund may reflect profits or losses arising on non-profits business. Such profits or losses may only occur on non-profits business within the fund.
 

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4. What are bonuses and guaranteed benefits?

The main payment under the policy is the sum assured. This is a fixed cash sum that we guarantee you will be paid on the maturity date (or on earlier death). We add bonuses to this sum assured so that the total payment you receive is based on your asset share.

We can add two types of bonuses to your policy. These are:

• annual bonuses, which are added each year to your policy and, once added, we cannot take them away; and

• a final bonus, which may be added on top of the annual bonuses when your policy comes to an end.

The with-profits actuary advises the Board on what bonuses to set on an annual basis, but it is down to the Board to make the final decision. It is the role of the with-profits actuary to report to the Board on areas of discretion as they relate to the fair treatment of policyholders.

An actuary is an expert in statistics and its application to solving problems regarding financial predictions. Actuaries are particularly involved in the fields of life insurance, pension funds, general insurance and the investment of the funds underlying those businesses.

We do not guarantee that we will always add bonuses although, unless there are unusual circumstances, the with-profits actuary would normally be in a position to recommend the payment of a bonus. When setting bonuses we will usually hold some of the fund in reserve in order to cope with variations in the performance of our investments, especially those that are linked to the stock market.

All with-profits policyholders will be sent an annual bonus statement which includes information about the current bonuses, as well as bonuses that have previously been added to your policy.

a) Annual bonuses

When deciding how much annual bonus to pay, one of the most important things we look at is how investments are likely to perform in future. For example, if we expect the return on investments to fall, we are likely to reduce bonuses. This could happen even if actual returns in the previous years have been higher. The with-profits actuary does try to ensure that bonus rates do not fluctuate too much from year to year and may hold back bonus in good years to compensate for less good years.

Annual bonuses cannot be taken away, so each annual bonus adds to the guaranteed value of your policy, unless you choose to surrender your policy early. In the event of surrender of the policy, the full value of allotted bonuses will not be paid and in the case of early surrender (for example, within the first five years) much of the bonus may be lost and you are likely to get back much less than you have paid in - please see Section 7. The decision whether to surrender or ‘cash in’ your policy is always yours but should be taken very carefully. We strongly recommend that you contact us before cashing in your policy as we may be able to suggest other alternatives, especially if you are experiencing any financial difficulties.

When a payment is made at the end of a policy, we may add an interim annual bonus too. This makes up for some or all of the expected annual bonus earned since the date on which the last annual bonus was added to your policy.

b) Final bonuses

Final bonuses may be added to policies when they end. Final bonuses are paid in order to ensure that you get back your asset share of the CWF. Note that if the total of the sum assured and annual bonuses already allocated to your policy is larger than your asset share, we guarantee to pay the larger amount. No final bonus would be paid in this case.
 

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5. What affects the value of my policy?

Many factors affect what you will get back from your policy. These are the main ones:

a) Investment returns

The biggest factor is the investment return earned by the CWF during the lifetime of your policy.

The investment return depends on several things, including how much of the fund we invest in different types of assets. We hold some higher-risk and potentially higher-return assets such as shares and property.

The rest is in lower-risk investments such as fixed-interest bonds issued by the Government or companies, as well as in cash deposits that earn interest.

The aim of our investment strategy is to achieve returns that will enable us to meet the guarantees under your policy, whilst also providing an opportunity to achieve greater growth through the use of potentially higher-return investments.

Some of the investment return we receive in the fund is free of all taxes, but we do pay tax on the rest. You will not normally have to pay tax on the payments we make to you, although additional tax payments can sometimes arise.

Over time the performance of different types of investments varies a lot, so we may change the balance of the investments to:

• improve long-term performance; and

• make sure that the CWF can always meet guaranteed payments to policy holders.

b) Guarantees to you

We guarantee a minimum amount that you will get back from your with-profits policy, but the guarantee only applies if you pay all the premiums that are due and:

• you hold the plan to the maturity date, or

• you die before the plan matures.

This minimum amount is usually the sum assured plus attaching bonuses, but may be a higher amount for your policy.

c) Smoothing

In managing the CWF we will seek to reduce the impact of investment market fluctuations, usually those that have occurred in the last three to five years, on what you get back. This is a process we call smoothing.

So, for example, if there is a sudden rise in the value of the investments held by the CWF, then the value of the fund will increase. The asset share on which we base the payments under your policy would also increase. We would not, however, immediately increase the final bonus to take account of this increase in your asset share; rather we would hold some funds back. On the other hand, should investment markets suddenly fall, we would not immediately reduce the final bonus and would instead use funds held back to pay more than asset share on policies that end.

Smoothing means that you do not need to worry about exactly when your policy is due to mature. We will make the same payment on similar policies from one month to the next even if the value of the underlying investments has changed. The only exceptions to this are once a year when the bonus scales are reviewed and adjusted; or possibly in cases where investment markets change by a very large amount in a short period, when we may be forced to carry out an additional review of final bonus rates. Our aim is to ensure that no matter what happens in the investment markets we can still be fair to all investors in the CWF. (Please also refer to ‘asset shares’ in Section 3 above.)

d) Our charges

All charges for administration and expenses are set out in the Transfer Agreement, a document that sets out the basis on which Forester Life will manage the CWF. The charges are as follows:

• 8.3% of each premium received. This charge increases in line with the Retail Price Index; plus

• 0.2% each year of the asset value of the CWF.

All of the charges are deducted from asset shares.
 
e) The value of the policy on death

On death, we will pay the sum assured plus annual bonuses declared during the lifetime of a policy plus, possibly, a final bonus. This would normally be well in excess of asset share. This is an extra benefit of a with-profits policy and all policyholders effectively make a small contribution to the cost of making the extra payments to the small number of policyholders who are unfortunate enough to die before their policy matures.

For the children’s life and savings policy, there are two people involved, and the full payment of the sum assured and bonuses is made only where the child dies. If the adult dies the policy continues but we pay all future premiums from the CWF to ensure that the full value of the policy still goes to the child at maturity. The requirement to pay all future premiums in this case only applies when, at the time the policy was taken out, the person originally taking out the policy was less than 60.
 

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6. The inherited estate and how we use it

The CWF has what is known as an inherited estate. This is a pot of money that has been built up over many years and which now provides working capital for the fund and supports its operation. It is gradually being distributed to policyholders as the fund diminishes.
 

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For policies taken out before 2009, if you decide to surrender your policy there is a fixed scale of penalties that we will apply in the first few years. Details of these penalties were provided to you at the time you took out the policy. In later years, after your policy has been in force for five full years, we will make a payment to you based on your asset share in a similar way to the assessment we make for policies that are maturing. We aim for this payment to be approximately 95% of your asset share.

For policies taken out in 2009 and later, no surrender value is payable until premiums have been paid for 12 months. After this time, we will make a payment to you based on your asset share in a similar way to the assessment we make for policies that are maturing. Again, we aim for this payment to be approximately 95% of asset share.

The only reason you may get back more than the above amounts is if you have an old-style policy that also protects you against medical retirement or compulsory redundancy. In this case, on the first of these events to occur you will receive:

• if your policy has been running for less than 10 years, a refund of premiums with interest; or

• if your policy has run for more than 10 years, payment of the full sum assured and bonuses, as though your policy had matured early.
 

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8. Children’s policies written before April 2001

Children’s policies written before April 2001 differ from the policies described in the rest of this document. The main difference is that the sum assured is not a fixed cash amount but is expressed as the value of a number of units instead. Each premium purchases further units and annual bonuses increase the value of those units. Once added to your policy the value of units is guaranteed. In other respects these with-profits policies operate in a similar way to the rest of our with-profits business.
 

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You can get a more detailed technical description of how we manage the CWF in our PPFM. You or your adviser can ask us for a copy (please write to Customer Services, Foresters House, 2 Cromwell Avenue, Bromley BR2 9BF or send an email to service@foresters.co.uk).

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