Merger of the Scottish Amicable Insurance Fund with the Prudential With-Profits Sub Fund

On 1 April 2021, the Scottish Amicable Insurance Fund (SAIF) merged with the Prudential’s With-Profits Sub Fund (WPSF). The WPSF is the Prudential Assurance Company (PAC) Ltd’s largest with-profits fund.

When the Scottish Amicable Life Assurance Society’s business was transferred to PAC in 1997, the Scheme which enabled this transfer, contained provisions for the SAIF to be merged with the WPSF when the SAIF’s assets fell below a specified level, known as the Threshold. Projections in early 2021 indicated that the Threshold is expected to be reached in 2024. The Scheme also permitted the SAIF to be merged with the WPSF before the Threshold is reached (an “Early Merger”). 

The PAC and Scottish Amicable Boards approved the early merger of the funds having carefully considered the interests of all its policyholders throughout the development of the proposals. On the basis of all available information, the early merger was considered to be beneficial to the SAIF with-profits policyholders compared to a merger when the Threshold is reached, and was not expected to have an adverse effect on Prudential's other policyholders. Merging the funds early provides continuing security and additional certainty for the SAIF policyholders, while ensuring a fair distribution of the SAIF surplus assets. Our regulators were kept informed throughout the merger process.

Final Relevant Policies Enhancement

As required by the terms of the SALAS Scheme, the SAIF enhancement was recalculated based on the position of the SAIF at the merger effective date. The final value of the enhancement (the “Actual Final Relevant Policies Enhancement”) has been confirmed at 12.4%. This value has been agreed by the PAC With-Profits Actuary and the PAC Chief Actuary, and approved by the PAC Board on the advice of the With-Profits Committee.

The final value of 12.4% is now fixed and has replaced the estimated value of 13.3% in final bonus rates from the 2022 bonus declaration. At this time the general performance of the fund over 2022 will also be reflected in bonuses. This approach is consistent with the usual practice for updating bonuses on with-profits policies with the aim of providing a smoothed return to policyholders. 

Final bonus rates may vary and are not guaranteed. The value of a with-profits plan depends on how much profit the fund makes and the resulting bonus rates applicable at that time. You may want to seek independent financial advice before making any decision to cash-in your plan. If you don’t have a financial adviser you can go to unbiased.co.uk to find one in your area.

Before the merger certain annual charges and allocations were applied to your policy. Since the merger on 1 April 2021 some of those charges and allocations no longer apply, instead their value has been allowed for in the enhancement payable on claims. 

The charges and allocations that no longer apply are:

  • The charge applied to all policies relating to Guaranteed Annuity Rate costs. This charge was 1.25% p.a. immediately prior to the merger.
  • The 0.15% p.a. charge which applied to all policies in respect of the capital support provided by the Scottish Amicable Capital Fund (SACF).
  • The variable charge or allocation payable from the Bonus Smoothing Account. This was a 1.9% p.a. allocation immediately prior to the merger.

Policies will continue to benefit from a 0.25% p.a. charge relating to profits from non-profit and unit-linked business.

 

Further details of this can be found in the Chairman’s Statement.  

The SAIF was closed to new business in 1997 and since that point the surplus assets over the liabilities have been used to provide enhancements to pay-outs to SAIF with-profits policies.

 

As a result of being closed to new business, the SAIF was reducing in size so the volatility to which it was exposed was increasing. An Early Merger provided certainty in respect of the share of the surplus assets of the SAIF that will be received by with-profits policies as enhancements to their pay-outs. It mitigated the risk of additional volatility that policyholders were exposed to sooner than would have been the case if the merger had only been implemented when the Threshold was reached.

 

In addition, while the funds had similar investment strategies, the SAIF historically had a slightly more conservative strategy than the WPSF due to the different risk profiles of the funds. This resulted in slightly lower long-term returns for SAIF relative to the WPSF. As a result of the merger, SAIF policies have the same higher risk investment strategy as the WPSF which is expected to result in slightly higher overall long-term returns. However, future investment performance cannot be guaranteed.

Prudential carefully considered the interests of all its policyholders throughout the development of the proposals for the Merger. In November 2020, the Court consented to the amendment of certain provisions of the Scheme which relate to the merger of the SAIF with the WPSF.  Details can be found at pru.co.uk/salaschanges

 

The process for implementing the Early Merger contained a number of safeguards that together ensured that the interests of all Prudential policyholders were protected. On the basis of all available information, Prudential considered that the Early Merger was beneficial to the SAIF with-profits policyholders compared to a merger when the Threshold was reached, and was not expected to have an adverse effect on Prudential's other policyholders. Merging the funds early provided continuing security and additional certainty for the SAIF policyholders, while ensuring a fair distribution of the surplus assets.

Although the Scottish Amicable Board has ceased to exist following the SAIF merger with the WPSF, the SAIF policyholders will still benefit from significant protections available under Prudential's governance processes.

 

Prudential's management of the SAIF with-profits policies will continue to be overseen by its With-Profits Committee and With-Profits Actuary.

 

In addition, as a regulated insurance company, Prudential will continue to be subject to supervision by the regulators, including in relation to the management of its business.

Related Documents

In November and December 2020, we sent letters to affected SAIF customers. You can download copies of an example letter, Frequently Asked Questions, and reports here:

With-Profits Letter specific to individual policyholders who have a with-profits policy.

Non-Profits Letter specific to individual policyholders who have a non-profits policy.

Frequently Asked Questions (FAQs)  sent with the With-Profits letter, providing you with more information if you need it.

Actuarial Reports submitted to the Court in 2020

A statement of the conclusions of each of the Prudential’s Chief Actuary and With-Profits Actuary and of the Monitoring Actuary  provided to the Scottish Court in 2020 can be obtained here.

 

Contact us

Post:

Write to us at: 
Prudential Customer Services
Lancing 
BN15 8GB

Phone:

Call us on 0345 640 3000 or +44 178 644 8844 if calling from outside the UK. Our lines are open between 8am and 6pm, Monday to Friday, except on bank holidays. Calls are free from UK landlines and mobile phones.

Secure Message:

Send us a secure email from our website. Please visit pru.co.uk/prumail