Mini budget summary

Withdrawing from our With-Profits Fund: Final Bonuses and Market Value Reductions (MVR) explained.

17th March 2020

6th May 2021

When you invest with us, we pool your money with that of our other members in our With-Profits fund, which aims to grow your investment over the medium to long-term in a smooth and more predictable manner than some other investments which might be higher risk.

However, history has shown that, while investing over the long-term produces higher returns than saving your money in a cash account, there have been periods where investment performance has been particularly strong but also times when performance has been poor.

As a mutual, we aim to ensure fairness for all of our members, and so when you leave our With-Profits fund we need to make sure that you do so with your fair share. To do this, we will calculate the value of the investments that you hold within the With-Profits Fund to ensure that you leave with your fair share. This may mean that:

  • If you have been invested through periods of strong investment performance, you might get a final bonus, or;
  • If you have been invested through periods of poor investment performance, and you leave the fund, you may get back less than the current value of your plan.

The following questions and answers are provided to give you information about how we’re managing and protecting your investment, as well as important information about what you should expect when you invest with us.

Will the value of my investment rise and fall?

Unlike investments that are directly linked to stock market performance, the value of your investment won’t change daily. We aim to add a bonus at the end of each calendar year to increase the value of your plan, something that we have achieved for the past 18 years despite periods of extreme market stress after the financial crisis and the coronavirus pandemic. However, you should remember that past performance cannot be used as a guarantee of future returns.

Can my investment lose value due to poor investment performance?

It is possible that you might get back less than you were expecting when you withdraw money from your plan, if you withdraw your money during or after a period of particularly poor investment performance.

This is known as a Market Value Reduction (MVR). The reason that we apply an MVR is to protect the interests of all our members who have money invested with us, by ensuring that you do not leave the With-Profits Fund with more than your fair share. Therefore, investing should be treated with a medium to long-term outlook.

What about if I withdraw during or after periods of strong investment performance?

When you withdraw from the With-Profits fund and we calculate the value of the investments that you hold within the fund, you may be due a final bonus if you have been invested through periods of strong investment performance.

I’ve just requested to withdraw my money, why have I not got back what I expected?

When you withdraw any money from your plan, we will calculate the value of the investments that you hold within the With-Profits Fund to ensure that you leave with your fair share. This may mean that:

  • If you have been invested through periods of strong investment performance, you might get a final bonus, or;
  • If you have been invested through periods of poor investment performance, and you leave the fund, you may get back less than the current value of your plan.

Our investment products, such as the Stocks and Shares ISA, are invested in a diverse range of assets, including stocks and shares, property, gilts, bonds, and cash. The aim of this is to reduce risk to our members, while aiming to grow their investment over the medium to long-term.

 What is an MVR?

An MVR is a way that we ensure that our members who hold investments with us are not unfairly disadvantaged when other members leave the With-Profits Fund during or after periods of poor investment performance. This ensures that all members maintain a fair share of the With-Profits Fund.

For example, imagine that we have three members who each have £10,000 invested, meaning that £30,000 is invested in the fund overall. If our investments go through a period of poor performance, it’s possible that the £30,000 could now be worth less than that. Let’s say in this example that the fund has lost 5% in value and is now worth £28,500. If one of the members chooses to withdraw their money and close their plan, and we give them their £10,000 back, that leaves our remaining two members with £18,500, or £9,250 each. If they both then choose to withdraw their money, we’re not able to give them their £10,000 back – the member who left first has gained an unfair advantage. In an MVR situation, the first member would have received back less than the face value of their plan, and that would ensure all members could still leave with an equal share.

When have you applied an MVR in the past?

While our Terms & Conditions have included the possibility of the application of an MVR for some time, there has only been one period during which an MVR was applied to all members who were requesting to leave the With-Profits Fund. This was during the coronavirus pandemic when worldwide investments lost a significant amount of value over a short period of time. It was necessary to apply the MVR so that the value of our members’ investments who were remaining invested in the fund were protected.

The MVR was removed when the value of the investments had recovered sufficiently.

How long will an MVR last for?

We don’t know – this depends on the details of each specific instance in which an MVR is being applied, but the position is reviewed monthly based on the latest investment performance. An MVR may not apply to all members, and some members may have their MVR removed before others; it all depends on how long they have been invested in the With-Profits Fund for, and how the investments have performed throughout the period that they have been invested.

Does investing for longer reduce the likelihood of an MVR being applied?

Yes. You should always plan to invest for the medium to long-term, as this gives your investment more time to benefit from periods of positive investment performance, and time to recover from periods of poor investment performance. Because of this, we recommend that you should plan to invest for a period of five years or longer.

What if my plan is maturing?

If you have a plan that has a defined maturity date, then the final amount you receive will not be affected by an MVR. Plans with a defined maturity date include:

  • Junior ISA
  • Young Saver Plan
  • Bonus Plan
  • Junior Money Maker
  • Five Year Fixed Rate Bond

If you are not sure whether your plan has a defined maturity date, then please contact us.

How does Shepherds Friendly manage my money?

Shepherds Friendly uses Royal London Asset Management (RLAM) to manage its investments. The investment objectives are to attain more growth and income than achievable in a cash savings account, while managing investment risk by diversifying the asset mix. This means that your money is invested widely across several different types of assets, to aim to reduce the overall impact of poor market performance.

Investments into our products are placed into our With-Profits fund, which means that we pool our members money together and apply a process known as ‘smoothing’ .This aims to ensure all our members are paid regular returns, over the medium to long-term. Smoothing attempts to smooth out the peaks and troughs usually experienced when market conditions change, by holding back some of the growth generated in strong investment conditions and making this available when conditions aren’t as favourable. Our investments are actively managed which means that our investment managers may make decisions to move your investment into different asset classes to minimise risk. This strategy helps to protect and grow your investment by anticipating and reacting to changes in market conditions.

Is my money protected?

Yes. The products we sell fall within the Financial Services Compensation Scheme and you are covered for 100% of the amount you invest with us should our Society suffer a complete financial failure.

Remember: Investing should be for the medium to long-term, which means you should aim to leave your money invested for five years or more.

We’re here to help

Please get in touch if you have any more questions about your investment with us. Our Member Services team will be happy to help and answer any queries you may have. You can contact them on: 

[email protected]

0800 526 249

Last updated: 06/05/2021