Life’s brighter under the sun

Life Assurance PlansConfederation Life With-Profits Fund bonus rates from 1 January 2015

Why are we sending you this brochure?

This brochure accompanies your Annual Statement, providing you with further information to help you understand how we set the bonus rates for your plan.

Throughout this brochure we refer to the Confederation Life With-Profits Fund as the

‘With-Profits Fund’.

This brochure only provides information on the With-Profits Fund. It is not written to provide you with advice on the suitability of your plan and this fund. For advice on your plan, please speak to your financial adviser.

This brochure provides information on:

lhow we manage the With-Profits Fund;

lthe bonus rates effective from 1 January 2015;

lthe long-term investment strategy and the asset allocation as at 30 September 2014; and

lthe performance of the With-Profits Fund and the key issues that have affected this.

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1. How we manage the With-Profits Fund

Your with-profits plan is invested in the With-Profits Fund. This means it shares in the profits and losses of the fund. We carefully manage the investment performance of the fund and monitor its profits and losses so that when we decide on a new bonus rate, we can make sure that the bonus allocation to plan-holders is fair.

The With-Profits Fund invests in fixed interest bonds (loans to the Government or companies) and cash. The With-Profits Fund pools the money from all its plan-holders. We manage the fund to provide a fair allocation to all plan-holders of the profits that have been earned over the term of their plan. This means that we are able to ‘smooth’ (see below) the allocation of profit over time to help protect plan-holders from the volatility of investment returns over the short-term.

About smoothing:

With-Profits investments include a special feature called ‘smoothing’, which is your cushion against the short-term ups and downs of investment markets. The main aim of smoothing is to reduce the effect of investment market fluctuations on what you get back from your plan. Smoothing, however, cannot protect against the impact of persistent low investment returns.

We manage the With-Profits Fund on behalf of our plan-holders who share in all the profits of the fund. We do not make any profit from the fund.

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2. The bonus rates effective from 1 January 2015

This section provides details about the bonus rates for the With-Profits Fund, effective from 1 January 2015. Bonuses vary according to the type of plan you have and the date it started. They will be shown on your Annual Statement.

We declare bonus rates once a year, normally in January. However, we may make changes to the bonus rates at other times. There are two types of bonuses:

• Reversionary bonus – this may be added to your plan each year. Recurring reversionary bonus rates are relatively stable from year to year and are not expected to change significantly except in adverse conditions when they could be zero. Reversionary bonuses increase the guaranteed minimum amount that we will pay on your plan’s maturity or if you should die. Once a reversionary bonus is added to the guaranteed minimum amount we cannot take it away.

• Terminal (or final) bonus – this may be added on top of the reversionary bonuses when the plan comes to an end. The intention is that this is a balancing payment so that we pay plan-holders a fair share of fund assets. The terminal bonus payable on any plan may go up or down over time, and could be zero.

A key principle for us in deciding the amount of bonus the fund can afford to pay is to firstly make sure there is enough money in the fund to pay the existing guaranteed benefits to our plan-holders. This includes the amounts we have guaranteed to pay on death or maturity plus any reversionary bonuses that are already allocated.

The level of any terminal bonus payable depends on a number of factors. These include:

• how investment returns have built up over the years;

• the deductions we make to pay for the running costs of the fund;

• the returns we expect to earn in the future on the assets of the fund; and

• the effect of smoothing (explained earlier).

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Reversionary bonus rates The table below shows the reversionary bonus rates from 1 January 2015 that apply to endowment and whole-of-life plans. We have not changed the reversionary bonus rates from last year to this year.

Plan series* % sum assured (premium paying plans)

% sum assured (non-premium paying plans)

% of total reversionary bonus added to date

pre 1966 4.5% 3.5% 2.4%

1966 4.0% 3.5% 2.4%

1969 4.0% 3.5% 3.6%

1975 3.0% 3.0% 4.0%

1982 3.0% 3.0% 4.0%

1988 3.0% 3.0% 4.0%

* Please see your Annual Statement

Terminal bonus rates - the most important factors affecting terminal bonus rates are the investment performance of the assets in the fund and the investment yields we are able to earn on those assets in the future (see Section 5). We have reduced terminal bonus rates so the values for plans maturing from 1 January 2015 will be lower than the future values projected last year. The terminal bonus amounts for your plan will be shown on your Annual Statement.

The table below shows the terminal bonus rates for payouts on maturity or on

death from 1 January 2015.

Terminal bonus rate table

Plan series* Pre 66 1966 1969 1975 1982 1988

Terminal Bonus 97% 85% 44% 34% 33% 5%

* Please see your Annual Statement

All terminal bonuses are calculated as a percentage of the reversionary bonus which has been added to the plan each year.

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Terminal bonus calculation on maturityWe have provided an example below of how we would work out the terminal bonus for a 25 year endowment plan with a sum assured of £10,000 maturing on 1 January 2015, with an existing reversionary bonus of, for example, £19,806.43.

Next we would work out any additional reversionary bonus. As the plan started in 1990 it falls into the policy series 1988 so we would apply a 3% reversionary bonus on the sum assured and a 4% reversionary bonus on the existing reversionary bonus (see reversionary bonus rate table on page 4).

And finally, we would work out the terminal bonus. As this is a 25 year endowment plan we would apply a terminal bonus of 5% of the existing reversionary bonus (see terminal bonus rate table on page 4).

£10,000.00 Sum assured The basic amount paid on maturity or death.

+ £19,806.43 Existing reversionary bonus This is the amount of reversionary bonus which has been added to the plan since it started.

+ £300.00 Additional reversionary bonus on sum assured We work this amount out by multiplying the reversionary bonus rate on sum assured (3%) by the sum assured (£10,000.00).

+ £792.26 Additional reversionary bonus on existing reversionary bonus We work this amount out by multiplying the reversionary bonus rate on reversionary bonus added to date (4%) by the existing reversionary bonus amount (+ £19,806.43). Adding the existing reversionary bonus, the additional reversionary bonus on sum assured and the additional reversionary bonus on existing reversionary bonus brings the total reversionary bonus to £20,898.69.

+ £1,044.93 Terminal bonus We work this amount out by multiplying the terminal bonus rate (5%) by the total reversionary bonus amount (£20,898.69).

£31,943.62 Final payout

Please note that the final payout on death or surrender before the plan matures may be different to above. Additionally, some plans have a guaranteed minimum death benefit which means that the amount paid on death will be the higher of the guaranteed minimum death benefit and the final payout figure calculated as above.

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Surrender values - As we have reduced terminal bonus rates for all plans maturing from January 2015, the surrender values have also reduced for all plans when compared with surrender values on previous terminal bonus rates. This ensures all plan-holders who leave the fund early are paid their fair share of fund assets and that there is fair treatment between groups of plan-holders. Please note that if you surrender your plan early, your surrender value may be less than the premiums paid and may change from the illustration date to the date of actual surrender. The early surrender value of any reversionary bonus is not guaranteed.

The reversionary bonus, terminal bonus and surrender value amounts for your plan will be shown on your Annual Statement.

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3. The long-term investment strategy and asset allocation

This section explains our long-term investment strategy for the With-Profits Fund and the asset allocation of the fund on 30 September 2014.

Our first priority is to make sure that the fund will be in a position to meet its guarantees to you and other plan-holders. The safest way of securing those guarantees is by investing in government bonds and high quality company bonds.

We review the long-term investment strategy at least yearly but may do so more often if investment market conditions change sharply. The investment mix will change over time. As the fund is closed and the number of plan-holders continues to reduce, we expect that the proportion invested in lower risk government bonds will need to increase over time to reduce uncertainty in future bonus rates and ensure sufficient cash flow within the fund.

Asset allocation as at 30 September 2014

Company Bonds 66%

Government Bonds 30%

Cash 4%

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4. Investment performance

This section looks at the key factors that have affected the performance of the With-Profits Fund over 2014.

The With-Profits Fund is primarily invested in fixed interest investments such as government and company bonds. They are referred to as fixed interest investments because we know the income we expect to receive from them, although their market value will change over time. These investments are loans to the Government and to companies that are raising money. Company bonds usually pay a higher rate of interest than loans to the Government.

We continue to follow a cautious investment strategy to ensure that all plan-holders get their fair share of the fund, as many of the plans mature over the next few years. The strategy means we are unlikely to share in any equity market increases (or declines) since we currently have no equity exposure, and it is unlikely that the exposure will increase in the future. Although the investment strategy is cautious, fixed interest investments do have the potential to default in extreme market conditions. Fixed interest assets also have the potential to fall in value severely if they are perceived to have an increased risk of default, and we may sell the affected assets in such a situation. In these circumstances future bonuses would be affected.

The investment performance of fixed interest investments reflects how this market performed. Broad fixed interest benchmark performance has been positive for the year to date.

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5. How the With-Profits Fund has performed

This section provides information on the With-Profits Fund performance and the actions we have taken to manage the assets in the fund in 2014.

Although the overall return of the With-Profits Fund was 7.3% for the period 1 October 2013 to 30 September 2014 this is more than offset by a reduction in expected future investment returns which takes account of the need to move towards holding lower risk assets in future to reduce uncertainty in future bonus rates and to ensure sufficient cash flow within the fund.

We updated the assumed number of plan-holders we expect to surrender their plans. As a result, this reduces the assumed amount of money released back into the fund.

We need to provide for the cost of converting the fund from providing variable bonuses which are not guaranteed to providing guaranteed fixed benefits in the future. We wrote to you in December to describe this fund conversion.

The factors described above have contributed to the reduction in terminal bonus rates in 2015.

The amount you will eventually receive from your plan is not linked directly to short term fluctuations in the value of assets in the With-Profits Fund.

Past performance is not a guide to future performance. The final value of a with-profits investment depends on future bonuses which cannot be guaranteed.

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6. Would you like to know more about the With-Profits Fund?

The Principles and Practices of Financial Management (‘PPFM’) for the Confederation Life With-Profits Fund is available on our website. During 2014 the PPFM was updated to reflect that under the terms of the Scheme, we can convert the fund to providing fixed benefits once it has reduced to a certain size. The fund has now passed this point and so in line with the Scheme we are investigating converting the fund for the benefit of the plan-holders going forward. We did not make any changes to the principles.

We produce a guide to explain how we manage the Confederation Life With-Profits Fund which is available on our website. We also updated this guide during 2014 to reflect the change described in the paragraph above.

In April 2014 we produced our 2013 annual Directors’ report to with-profits plan-holders. This report confirmed that we have complied with our PPFM during 2013. The 2014 annual report will be published at a similar point in 2015.

For a copy of these documents, or if you need any further information, please call us on 0845 072 0223 or visit www.sloc.co.uk

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Life’s brighter under the sun

Sun Life Assurance Company of Canada (U.K.) Limited, incorporated in England and Wales, registered number 959082, registered office at Matrix House, Basing View, Basingstoke, Hampshire, RG21 4DZ, trades under the name of Sun Life Financial of Canada and is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority.

SL3571 - 12/14 MC00000258/1214

PhoneCustomer helpline: 0845 072 0223

Emailuk.customerservice@sloc.co.uk

Fax0845 678 0679

OnlineVisit us online at www.sloc.co.ukFor the latest news, fund information and product literature.

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