Market Value Reduction (MVR) for with-profits policies

An MVR is a reduction to the amount paid out from a with-profits policy, or switched from a with-profits fund. It is used to protect the interests of policyholders who remain invested in with-profits.

When investors leave the with-profits fund during extreme market conditions like we saw in late 2008 and early 2009, we may need to reduce their policy payout to make sure they do not receive more than their fair share of the fund.  This is often done by applying an MVR.

A simple example of why this might be appropriate is as follows:

• Suppose we have only three investors in the with-profits fund whose policies are each worth £10,000, meaning that the total value of the fund is £30,000.

• Now suppose the value of the fund falls by 10%, reducing the total value of the fund to £27,000.

• If bonus rates are unchanged, and one investor then chooses to take his savings of £10,000 without us applying an MVR, only £17,000 would be left in the fund to share between the remaining two investors.

Assuming the investor who is leaving is doing so at a time when an MVR could apply to his policy, we may apply an MVR of 10% to make his payout the ‘fairer’ value of £9,000.

There are certain instances where we will never apply an MVR, such as death, maturity (of an endowment policy), taking pension savings at your originally selected retirement date, or payment of a regular withdrawal that was set up when the policy started.

Below are the general circumstances where an MVR may or may not be applied, but the policy information you received when your policy started will describe the full range of times when an MVR will not be applied.  Please see your policy type below, to find out more.