Key features of the With Profits Income Bond€¦ · · 2011-03-302 With Profits Income Bond Key Features ... a copy of the contract document is ... guarantee the amount invested

Key features of theWith Profits Income Bond

This is an important document which you should read and keep in asafe place. You may need to refer to it in future.

With Profits Income Bond Key Features2

The purpose of this document is to explainthe aims of the Legal & General With ProfitsIncome Bond, together with yourcommitment, risks, the charges and othergeneral information.

We have tried to keep the information asrelevant and simple as possible. Thisdocument is not intended to explain all thedetails of the policy. If you would like moredetail, a copy of the contract document isavailable on request.

Important informationThis document should be read in conjunctionwith our ‘Introduction to Unitised With Profits’booklet, which gives more detailed informationon how we manage With Profits investments, andhow unitised With Profits works.

Contents

Introduction 3

The aims of the With Profits 4Income BondWhat is the bond designed to do for you?

Your commitment 4This is what you need to be willing to do ifyou are going to invest in this product.

Risks 4These are things you should consider beforechoosing to invest in this product.

Frequently asked questions 5The questions that most customers want the answers to before investing.

How to contact us 9

Other information 10Where to find out more about the bond,Legal & General and our regulator.

About this document


The With Profits Income Bond is a lump suminvestment, with no end date, whichinvests in Legal & General’s With Profits.

All or part of the investment can becashed in at any time, although it shouldbe regarded as an investment for at leastfive years, ideally longer.

The minimum investment is £5,000.

Helping you decide

The Financial Services Authority is the independentfinancial services regulator. It requires us,Legal & General, to give you this importantinformation to help you decide whether our With Profits Income Bond is right for you.

You should read this document carefully so thatyou understand what you are buying, and thenkeep it safe for future reference. The full KeyFeatures comprises this document together withyour personal illustration.

Firms providing similar products will also have Key Features documents. This will enable you tocompare different products and decide which, if any, is right for you.

What questions should I ask before I invest?You should consider whether the With ProfitsIncome Bond is right for you. You may, amongstother questions, want to ask yourself the followingafter reading the rest of this document.

• Does With Profits meet my investment needs?

• Am I happy to invest in With Profits for the firstfive years of each investment?

• Am I happy with the level of risk related to theinvestment?

• Am I happy to leave my money invested for therecommended length of time?

• Will it allow me to access my money when Iwant to?

• Am I happy with the charges?

• Do I understand what happens if I die while stillhaving money invested?

• Do I understand the tax implications?

Introduction


Its aims• To offer a tax efficient method of taking an

income on a monthly, quarterly, half yearly oryearly basis (see ‘What about tax?’ on page 9 formore information).

• Depending on the level of income taken, thebond may provide growth over the medium tolong term.

• To pay a lump sum benefit on death.

Important Note: Income is taken by regularwithdrawals from the bond and is referred to as‘regular withdrawals’ in this document.

Your commitment• You invest a lump sum of at least £5,000. You can

also make additional lump sum investments intothe bond (see ‘How flexible is it?’ on page 7).

• The bond does not have an end date but youshould be prepared to invest for at least fiveyears, ideally longer.

Risks• What you get back will depend on the

investment performance of assets such as shares,fixed interest securities and UK commercialproperty.

• As a result of the investment performance, it maybe necessary to apply a Market Value Reductionin certain circumstances. This would reduce theamount you receive if you decide to cash in all orpart of your bond or switch out of With Profits(as explained in ‘What might I get back?’ on page6).

• The return you receive is not guaranteed andyou could get back less than your originalinvestment. Any regular or one off withdrawalstaken will increase this risk.

• Unless the performance of your investmentmeets or exceeds the level of regularwithdrawals the value of your investment willreduce.

• You may get back less than illustrated if theinvestment returns are lower, charges are higherand/or the amount of money taken out of thebond is not allowed for in your personalillustration.

• When you take cash from your bond, theamount you get back may be reduced due to an‘early surrender charge’. This applies to anymoney taken from your bond in the first fiveyears, from the date of each investment (otherthan regular withdrawals within the limitsexplained in ‘Can I take money out?’ on page 7).

• What you get back depends on future bonusrates, which are not guaranteed and can change(see ‘What might I get back?’ on page 6). Futurebonus rates may be reduced if, for example, ourexpenses are higher than anticipated, there is anincrease in the expected cost of guarantees andoptions for With Profits policies or investmentperformance is less than expected.

• You share in the risks of other With Profitsbonds, which can reduce your bonuses andtherefore the amount we pay you. You also sharein the risks of other With Profits policies, such aspension plans.

• We write With Profits and Non Profit policies(that is policies which are not eligible forbonuses) in our With Profits fund. We provideguarantees for both With Profits and Non Profitpolicies and the assets in the whole fund areultimately available to meet them. This meansthat, although you may benefit from supportfrom the assets backing Non Profit business, wecould reduce the amount we pay you if we haveto use the assets backing With Profits business tosupport Non Profit business.

• Unless the performance of your investmentmeets or exceeds the rate of inflation, the realvalue of your investment will reduce.

• The law and tax rates may change in the future.

Key Features of theWith Profits Income Bond


What is the With Profits Income Bond?• It is a single premium lump sum investment

bond that invests in Legal & General’sWith Profits.

• You can invest for as long as you like. There isno end date, although it should be considered amedium to long term investment of at least fiveyears, ideally longer.

• You can take one off amounts or regularwithdrawals from your bond to provide youwith an income. The amount you choose toreceive can be linked to the bonuses added toyour bond, a specified percentage of theamount of your original investment or aspecified percentage of your bond's value (see‘Can I take money out?’ on page 7).

• The bond is a life assurance contract. It can beheld in the name of one person alone or it caninclude up to six people (the life or livesassured). The sole person, or at least one if thebond is held in more than one name, must beunder age 90 when the investment is made. Theperson making the investment must be aged 18or over.

• The bond ends on the death of the sole personin whose name the bond is held, or on thedeath of the last person if in more than onename. If you would like to arrange for specificfamily or friends to benefit, ask your financialadviser for details of placing your bond into atrust.

Where is my money invested?• We combine your investment with money from

thousands of other With Profits investors intothe With Profits fund. We use the money in thefund to buy a range of investments (or ‘assets’)such as UK and overseas shares, UK commercialproperty and fixed interest securities (a fixedinterest security is a way of ‘lending’ money to agovernment, or to a company, in return for afixed rate of interest over a set period).

• While all our With Profits customers areinvested together in the With Profits fund, theinvestment return paid to With Profits bondinvestors may be based on different proportionsof each type of investment than for theWith Profits fund as a whole. This investmentapproach may be undertaken for a number ofreasons, including to reflect the features andpurposes of different groups of plans.

By investing in a range of assets, you can benefitfrom diversification should any one investmentexperience poor performance. As the assets reactdifferently to economic factors, when one is notperforming well, another may be performing better.

• The nature of all the underlying investmentsmakes the bond higher risk than typical bank orbuilding society deposit accounts, whichguarantee the amount invested. However, overthe medium to long term it does offer you thepotential of higher returns. Conversely, it islower risk than direct investment in thestockmarket although the potential for highreturns is reduced compared to an investmententirely in shares.

• The money paid into your bond that is investedin With Profits is used to purchase whole or partunits at a cost of £1 per unit.

• The percentage of your money used to buyunits (known as the allocation rate) depends onyour age and the amount of your investment(see ‘What are the charges?’ on page 8).

How can I find out more about WithProfits investments?• Your adviser will provide you with a copy of

Legal & General’s ‘Introduction to Unitised WithProfits’ booklet which explains the particularfeatures of With Profits investments anddescribes how we manage our unitised WithProfits investments.

• A more detailed description of With Profits iscontained in a document called ‘Principles andPractices of Financial Management’ (PPFM)which is available on request.

The chart shows anexample of how theWith Profitsinvestments may besplit for theWith Profits IncomeBond. Theinvestment mix isnot fixed and maychange over time.

This chart is for illustration only. For an actual breakdownof the latest investment mix a copy of our bonusfactsheet is available on request.

Frequently asked questions


What might I get back?• Your share of any profits on the underlying

investments made available for distribution toour policyholders are passed on to you byadding bonuses in whole or part units to yourbond. We aim to do this each year by theaddition of an annual bonus.

• The amount of ‘income’ you receive or thegrowth of your bond depends upon the amountof these annual bonuses. Future bonus rates arenot guaranteed.

• We determine the amount of bonus to be addedby initially taking account of the performance ofthe assets underlying bonds similar to yours, wethen consider outgoings such as money paidout to bondholders, the cost of providingbenefits (such as guarantees) and expenses.

• The amount of bonus will be affected by anysmoothing that may be taking place.

Smoothing is a particular feature of With Profitswhich aims to even out some of the short termfluctuations that may be experienced wheninvesting directly in the stockmarket or otherinvestments. This means that in years of goodinvestment returns, the bonuses added to yourplan may be less than they would otherwise

have been, but in years of less strong investmentreturns they may be more.

More information on smoothing can be foundin our ‘Introduction to Unitised With Profits’booklet.

• The amount you receive on cashing in yourbond will largely depend upon:

- the bonuses added- the length of time you hold it- how much you have already taken out of it- the charges- any early surrender charge that may apply- any Market Value Reduction that may apply.

Early surrender charge

An early surrender charge applies if you cash in all orpart of your bond (other than ‘regular withdrawals’)at any time in the first five years from the date of eachinvestment. The amount, and an example of theeffect of this, is shown in your personal illustration.

Market Value Reduction

• A Market Value Reduction may be applied whenyou decide to cash in all or part of your bond,irrespective of the length of time you have held it.


If we apply a Market Value Reduction this meansthat we may pay less than the value of the unitsin your plan and any declared bonuses. This willusually apply when investment conditions havebeen insufficient to support bonuses. It will alsoaccount for additional deductions that may berequired to cover the cost of guarantees andoptions for With Profits policies.

We apply a Market Value Reduction so we canmaintain fairness between policyholders wholeave the fund and those who remain in it.

This aims to ensure that remainingpolicyholders are not disadvantaged. If youwould like to know if a Market Value Reductionis being applied, please contact us using thecontact details on page 10.

More information on Market Value Reductionsand when they may be applied can be found inour ‘Introduction to Unitised With Profits’ booklet.

• The potential impact of these deductions is that,unlike a deposit account, your capital is notguaranteed. It is possible that you could getback less than you originally invested, especiallyif you cash in during the early years at a timewhen investment conditions are particularlyunfavourable.

Initial charge

• There is a particular risk of getting back lessthan originally invested if the person holdingthe bond was aged 75 or over (or all the peopleif in more than one name) when the investmentwas originally made. This is due to an initialcharge being deducted from your investment(see ‘What are the charges?’ on page 8).

Your personal illustration gives examples of whatmight happen if the underlying fund achieves theinvestment growth rates used throughout theperiod of your investment.

How flexible is it?• You can keep the investment for as long as you

like. You can cash in all or part of it at any time,or take regular withdrawals to provide you withan income.

• The bond is set up as a series of identicalcontracts (‘policies’) to give you greater choiceas to how you take money from your bond andpotentially to increase its tax efficiency.

• You can pay additional lump sum investmentsinto your bond at any time subject to:

- Legal & General still offering such a bondfor new investments generally;

- the contract terms applicable at the time.

Can I take money out?• You can take one off amounts or regular

withdrawals to provide you with an income.However, this will reduce the remaining valueof your investment and affect its futureperformance (see ‘What might I get back?’ on page 6).

• You should remember that the bond is designedto be an investment for at least five years andideally longer. An early surrender charge will bededucted for any money you withdraw in thefirst five years of your investment other thanwithin the maximum regular withdrawal limits.

• Your bond consists of a series of identicalcontracts (‘policies’). You can take one offamounts at any time by one of the followingmethods:

- cashing in any number of the policies whileleaving the others intact

- taking an amount from all or some of thepolicies

- fully cashing in the whole bond.

• This gives you flexibility to withdraw money andto do it in a way that is most appropriate to yourpersonal tax circumstances at the time.

• You can choose to receive regular withdrawalsby one of the following options:

- bonus linked- fixed amounts of money- percentage of your original investment- percentage of your bond’s value.

The withdrawal amount is paid into your chosenbank account every month or, if you prefer, every 3,6 or 12 months. The first payment cannot be earlierthan one payment frequency from the date of yourinvestment. For example, if the investment is madeon 1 June and payments are required every 12 months, the first payment cannot be madebefore 1 June of the following year.

Bonus linked

• You can choose to take the bonuses added toyour bond to provide you with an income,rather than leaving them to accumulate toincrease the value of your bond.

• We will cash in units to provide you withpayments at a rate equal to the interim bonusrate*. No Market Value Reduction is applied atany time. The annual bonus rate could behigher or lower than the interim bonus rate,and if lower, the value of your bond couldreduce.


Fixed amounts of money or percentage oforiginal investment

• We will cash in units to provide you with anamount specified by you, either as a fixedamount of money or as a percentage of youroriginal investment. The maximum amount youcan take as a regular withdrawal each year is7.5% of your original investment.

• If the amount of regular withdrawals is higherthan the interim bonus rate*, the excess may besubject to a Market Value Reduction.

• If a Market Value Reduction needs to be applied,the fixed amount payable to you will remain thesame and additional units will be cashed in tocover the shortfall created by the Market ValueReduction.

Percentage of your bond’s value

• We will cash in units to provide you with aselected percentage of the bond’s value. Themaximum amount you can take as a regularwithdrawal each year is 7.5% of the bond’svalue.

• If the percentage of the bond’s value beingwithdrawn is higher than the interim bonusrate*, the amount in excess of the interimbonus may be subject to a Market ValueReduction.

• If a Market Value Reduction needs to be applied,we will reduce the amount payable to you andwe will not cash in additional units to achievethe original withdrawal amount requested.

* The interim bonus rate applies to any money withdrawn fromyour bond to cover the period for which an annual bonus hasnot been declared. We set the interim bonus rate at the level atwhich the annual bonus is expected to be declared, although it isnot guaranteed.

Can I invest in any other funds?At any time following the fifth anniversary of thebond, you can switch out of With Profits into one ormore of our unit linked funds. Details of the fundsyou can invest in are available on request.

What happens to the bond if I die?• If the bond is in one name, the bond will end

on the death of that person.

• If the bond is in the name of more than oneperson, the bond remains invested until the lastperson dies.

• The amount payable will be 101% of the fullvalue of your bond. We guarantee not to applyan early surrender charge or Market ValueReduction in these circumstances.

What are the charges?The following deductions are taken into accountwhen we set bonus rates:

a) the various costs and expenses involved whensetting up and managing With Profits bonds,such as:

- investment management- administration- commission payments to financial advisers;

and

b) the cost of providing the guarantees andoptions and other expenses of the With Profitsfund, such as the value of a bond on death; and

c) the cost of providing life cover; and

d) the payments we make to our shareholders.

In addition, the following charges may apply:

Initial charge

• A percentage of your money invested in the bondis used to buy units (known as the allocationrate). The allocation rate depends upon:

- the amount of your investment- the age of the person in whose name the

bond is held.

• The standard allocation rates we apply are asshown in the following table. If the bond is heldin the name of more than one person, the ageof the youngest person is used.

• If the allocation rate shown in your personalillustration is 100%, no initial charge applies. If the allocation rate is over 100%, then weincrease the amount used to buy units.

• An initial charge only applies to standardallocation rates where the person holding thebond (or all the people if the bond is held inmore than one name) is aged 75 or over whenthe investment is made.

Example: If you are aged 75 or over and youinvest £10,000 then your allocation rate is97.5%. This means that £9,750 (97.5% x £10,000= £9,750) will be used to buy units. So in thisexample, the initial charge is £250 (that is 2.5%of £10,000).

Investment amount Age 74 Age 75 and under and over

£5,000 - £24,999 100% 97.5%

£25,000 - £49,999 100.5% 98%

£50,000 – £99,999 101% 98.5%

£100,000 and over 101.25% 98.75%


Our standard terms are set to cover the costs ofsetting up our bonds, the cost of the life cover andpaying financial advisers (if applicable) over aperiod of time, rather than making an up frontdeduction from the investment. Our actuarialexperience in assessing life expectancy tells us thatfor lives aged 75 and above there is an increasedchance of the bond ceasing due to the death of thelife assured. Therefore, where the life assured isaged 75 or more, we make an initial charge to coversome of our costs due to the increased chances thatwe will not fully recover our costs over the term thebond is in force. This is general practice in theinvestment bond market.

Early surrender charge• This applies if you cash in all or part of your

bond (other than regular withdrawals within thelimits) at any time in the first five years from thedate of each investment. The amount, and anexample of the effect of this, is shown in yourpersonal illustration.

The effect of the deductions and charges on yourbond is shown in your personal illustration. Pleasealso see ‘What might I get back?’ on page 6.

What about tax?The underlying fund is liable to tax on investmentincome and capital gains. Legal & General pays thistax. You cannot reclaim this tax.

When you take money from your bond, it is payablefree of any personal liability to income tax at basicor lower rates, or to capital gains tax.

If you are a higher rate taxpayer (or become ahigher rate taxpayer when you receive money fromthe bond), there may be an income tax charge inthe following circumstances:

- if regular withdrawals in any year exceed 5% ofthe amount invested*

- if you cash in one or any number of theindividual contracts making up the bond

- if you cash in all or some of the contracts in anyyear which exceed 5% of the amount invested inthose contracts*

- if the cumulative total of regular or one offwithdrawals of all or some of the contractsexceeds 100% of the amount invested in thosecontracts.

• If you are eligible for any Age Allowance,Working Tax Credit or Child Tax Credit whenany of the above circumstances apply, yourallowance may be reduced which could result inan increase in the tax you pay.

• If the bond ends due to death, the beneficiariesmay have a liability to income tax. They may alsohave to pay inheritance tax unless the bond hasbeen written under a trust.

• These details are based upon Legal & General’sunderstanding of current tax law andHM Revenue & Customs practice, which aresubject to change.

• Your financial adviser can provide furtherinformation on the tax treatment of the bond orabout putting it into a trust.

* Please note the 5% a year is cumulative and any unused part canbe carried forward for future years (up to a maximum of 20years).

Can I change my mind?• On completion of the processing of your

application for the bond, you will receive acancellation form. On receipt of this form, youhave 30 days in which you can cancel andreceive a full refund of the money paid to us(less any amounts we have already paid you).

• If you decide to cancel, you should complete thecancellation form and return it to the addressshown in the ‘How to contact us’ section onpage 10.

• If you do not cancel within 30 days andsubsequently change your mind, you can cashin your bond. You will be subject to theinvestment risks and charges as detailed in‘What might I get back?’ on page 6.

How will I know how my bond is doing?After we have accepted your application, we willsend you your plan documentation.

We’ll send you a statement with the value of yourbond at least once a year.

You can ask for a valuation or additional statementsfrom us at any other time.


Additional detailsThis document, your personal illustration and the‘Introduction to Unitised With Profits’ give asummary of the important things you need to knowbefore deciding to invest.

If you require more detailed information about thebond, you can request a copy of the ContractDocument from your financial adviser. Thiscontains the Policy Schedule and Policy Provisions(full terms and conditions). The ContractDocument is sent to all investors shortly after wecomplete the processing of an application.

Otherinformation

How to contact usYour adviser will normally be able to help youwith any questions you have about the bondthat are not answered in these Key Features orthe Introduction to Unitised With Profits.

If you’d like to ask us anything, please do. Youcan contact us using either of the following:

Call us on 0370 010 4080

Call charges will vary. We may record andmonitor calls.

Write to us at:Legal & GeneralPO Box 1186HoveEast SussexBN3 1SD


About Legal & GeneralThe Legal & General Group, established in 1836, isone of the UK’s leading financial services companies.

Over 6.5 million people rely on us for life assurance,pensions, investments and general insurance plans.The Legal & General Group is responsible forinvesting £287 billion worldwide (as at 30 June 2009) on behalf of investors,policyholders and shareholders.

Our regulatorWe are authorised and regulated by the FinancialServices Authority (FSA). We are entered on theirregister under number 117659. You can check thisat www.fsa.gov.uk/register or telephone them on 0845 606 1234.

How to complainIf you would like to complain about any aspect ofthe service you have received from Legal & General,or would like us to send you a copy of our internalcomplaint handling process, please call or write tous using the details set out in the ‘How to contactus’ section on page 10.

If you are not satisfied, you can complain to:

The Financial Ombudsman ServiceSouth Quay Plaza183 Marsh Wall, London E14 9SR

Telephone: 0845 080 1800Email: [email protected]: www.financial-ombudsman.org.uk

Making a complaint will not affect your legal rights.

Compensation schemeAs we are the provider of this product, you may beentitled to compensation from the Financial ServicesCompensation Scheme (FSCS) if we are in financialdifficulties and unable, or likely to be unable to paywhat we owe. Your ability to claim and the amountyou may be able to claim will depend on the specificcircumstances of your claim. From 1 January 2010the FSCS will cover 90% of the value of the validclaim per firm, per customer. There is no upperfinancial limit on the claim. For more informationabout the scheme, including eligibility to claim andfrequently asked questions, please see the FSCS'swebsite - www.fscs.org.uk or contact their CustomerServices Team on 020 7892 7300.

LawUnless otherwise stated in writing, the lawapplicable to the bond is English law.

The Terms and Conditions and all our customercommunications will only be available in English.

All communications from us will normally be byletter or telephone.

Customer categorisationThe financial service regulators require us to putour customers into groups so that we can treatthem according to their level of knowledge aboutinvestments.

These groups are:

– Retail client;– Professional client; or– Eligible counterparty.

We treat all customers who invest in our bonds asretail clients. This gives you the greatest level ofprotection under the regulations and ensures youget full information about any products you buy.

If you know a lot about investments, maybebecause you work in the industry, you can betreated as professional client or eligiblecounterparty under the regulations. This won’taffect the way we deal with you but it may affectyour ability to refer complaints to the FinancialOmbudsman Service or to make a claim under theFinancial Services Compensation Scheme.

Conflicts of interestDuring the term of your investment, conflicts ofinterest may arise between you and us, ouremployees, our associated companies or ourrepresentatives. A conflict of interest is where ourduties to you as a customer may conflict withwhat’s best for ourselves.

To ensure we treat customers consistently andfairly, we have a policy on how to identify andmanage these conflicts. A copy of the policy isavailable on request from the address shown in the‘How to contact us’ section on page 10 or from ourwebsite at www.legalandgeneral.com/legal-security.

Authorised and regulated by the Financial Services Authority

Legal & General Assurance Society LimitedRegistered in England No 166055Registered office: One Coleman Street, London EC2R 5AAThis is also where our head office is in the UK.A member of the Association of British Insurers.

www.legalandgeneral.com

W9892 01/10 H95161 4011214

Documents

Key features of the With Profits Income Bond€¦ · · 2011-03-302 With Profits Income Bond Key Features ... a copy of the contract document is ... guarantee the amount invested