If you’ve got a with-profits investment—maybe from a pension or endowment taken out years ago—you’re not alone in wondering if it’s time to cash in, transfer out, or sit tight.
We speak to lots of clients approaching retirement who feel unsure whether their old plan is quietly working away or just dragging along. These policies often come with complex guarantees, mixed performance, and not a lot of clarity.
In this post, we’ll walk through the key questions to ask before making a move—covering bonuses, penalties, guarantees, and what alternatives might offer better long-term value.
Whether your goal is better growth, more flexibility, or just peace of mind about what you’re holding, this guide will help you make an informed call.
Let’s break it down, plain and simple.
What Exactly Is a With-Profits Policy?
With-profits policies were once a popular way to save for the future—especially through pensions, endowments, and savings plans sold in the 80s and 90s. The idea was simple: your money goes into a pooled investment fund, and the insurer shares out the profits in the form of bonuses.
But there are different types of with-profits funds, and how they work (and how they perform) can vary quite a bit. Here’s a quick overview:
| Type | How It Works | Common in |
|---|---|---|
| Conventional With-Profits | Everyone shares the same investment pot. Annual and terminal bonuses are added based on fund performance—smoothed over time to reduce volatility. | Older endowments and pensions |
| Unitised With-Profits | You buy units in the fund. Bonuses either increase the unit value or add more units. Slightly more flexible than conventional. | Some pensions, bonds, hybrid savings plans |
In both types, returns are smoothed—meaning profits in good years might be held back to cover poor years. It’s meant to reduce the ups and downs, but it also makes it hard to know how well your investment is really doing.
Confused which one you have? Don’t worry—it should say in your policy documents, or we can help you check.
Bonuses, Guarantees, and Penalties: What to Look Out For
Before you do anything with your policy, it’s important to understand three key features that could seriously affect your decision:
1. Bonuses
These are the “returns” paid by your provider. They come in two main forms:
- Annual Bonuses: Added each year based on fund performance. Often modest nowadays—sometimes 0%.
- Terminal Bonuses: Paid at the end of the policy as a loyalty reward. Can be substantial, but not guaranteed.
Important: Many funds use smoothing—holding back profits in good years to top up poor ones. It makes the growth look stable, but can hide true performance.
2. Guarantees
Some older with-profits policies include valuable guarantees—especially pensions and endowments.
- Guaranteed Annuity Rates: A set rate for turning your pension pot into income—often far better than today’s rates.
- Guaranteed Sums on Death: In endowments, a lump sum paid on death even if the market falls.
These guarantees can tip the scales—don’t cash in or transfer out without checking for them.
3. Penalties (MVRs)
Market Value Reductions (MVRs) are penalties some providers apply if you cash in early—especially when markets are down or the fund is under pressure.
Always ask for two figures: your policy value and your transfer/surrender value. If there’s a big gap, and the policy value is the higher number an MVR is likely being applied.
Also check if your policy has any MVR-free dates—often at 10-year points—when you can exit without penalty.
Market Value Reductions (MVRs) are penalties some providers apply if you cash in early—especially when markets are down or the fund is under pressure.
Always ask for two figures: your policy value and your transfer/surrender value. If there’s a big gap, and the policy value is the higher number an MVR is likely being applied.
Also check if your policy has any MVR-free dates—often at 10-year points—when you can exit without penalty.
Is It Time to Get Out? A Simple Decision Framework
There’s no one-size-fits-all answer—but here are the key questions to help you decide whether to stick or switch:
Does the plan still meet your original goal?
Maybe you took out the policy to repay your mortgage or to top up retirement income. Is it still on track for that purpose—or has your situation changed?
Are there any guarantees you’d lose?
Check for guaranteed annuity rates, minimum payouts on death or maturity, or bonuses that only apply if you stay invested. Losing these could outweigh any growth benefits from switching.
Are the charges eating into performance?
Some older policies have high annual charges that silently erode your returns. Compare your policy’s costs and projected growth with modern alternatives.
Alternatively if the plan says it has no charges it usually means it is being deducted before performance and returns are passed to you
Interpreting the charges can be complex even if you’re really good at maths … if you don’t understand it get help, we offer a free initial consultation
Is your fund invested for growth—or just treading water?
Many with-profits funds have shifted to low-risk, low-return assets like gilts and property. That might protect your capital—but also means limited upside.
This information is usually in the PPFM (Principles and Practices of Financial Management) ask your provider for a copy.
Could switching give you more control or better outcomes?
If your plan allows a switch into a more modern, flexible investment—especially inside a pension wrapper—it might unlock better growth potential and clearer retirement planning.
What Are Your Options If You Want to Exit?
If you’ve decided your with-profits policy no longer fits your goals, here are the main ways to move on—and what to watch out for with each:
1. Make the Plan Paid-Up
This means stopping further payments but leaving the money invested until maturity. It’s simple and avoids any immediate penalties—but your fund might still incur annual charges, and without new bonuses being added, it could stagnate.
2. Cash It In (Surrender)
You can ask your provider for the surrender value—this is what they’ll pay you if you exit early. But check carefully for:
- Exit penalties (MVRs): Could reduce your payout.
- Lost guarantees: You may be giving up valuable features.
Always get both the current value and the surrender value to compare.
3. Sell It on the Second-Hand Market
If you have a with-profits endowment, you might be able to sell it to a specialist buyer. Some policies fetch more this way than the surrender value. Worth checking if your plan qualifies—especially if it’s near maturity and includes life cover.
As I update this article in 2025 though I have to say the second hand market doesn’t really exist other than in ‘theory’ – nobody seems to be actively buying anymore.
4. Transfer to Another Provider or Plan
For pensions and some bonds, you may be able to transfer into a more modern, flexible plan with lower charges or better growth potential. This could be inside a personal pension or investment platform—but make sure any transfer is done with proper advice to avoid giving up guarantees or triggering tax issues.
5. Switch Funds Within the Same Provider
Some providers let you move from the with-profits fund to a different investment fund they offer. It’s worth exploring, but check the new fund’s performance, charges, and whether it really improves your position—or if an external transfer might offer more freedom.
What’s the Right Move for You?
There’s no universal answer—but the good news is you don’t have to figure it out alone.
We help people across the North East work out exactly what they’re holding, what it’s worth, and whether it’s still pulling its weight. Sometimes the advice is: “Keep it.” Sometimes it’s: “Time for something better.” Either way, you’ll walk away with clarity and confidence.
If you’ve got a with-profits plan and you’re unsure what to do next, book a quick, no-pressure call. We’ll review your policy and give you an honest take on whether it’s worth keeping or cashing in.
