Passport Series With-Profits Funds MLA Explained

Market Level Adjusters Explained

What is a market level adjuster (MLA)?

A MLA is a deduction which may be made from money which is taken out of a With-Profits fund to protect the interests of remaining investors when market conditions are less favourable. When applied the MLA is in addition to other charges on the policy.

Why might a market level adjuster be needed?

An investment in a With-Profits Fund should be viewed as a medium to long-term investment. A With-Profits Fund is invested partly in equity-type investments, which fluctuate in price over the short term. The With-Profits Fund aims to provide good, long-term returns to investors by smoothing out the effects of short-term market fluctuations.

Over long periods it can be expected that the bonus rates will be set so that the growth in value of the units and the growth in value of the underlying assets of the policy are similar, but in the shorter term there can be significant differences.

Therefore, in order to protect the interests of remaining investors, there will be periods when it is necessary to reduce the amount payable when money is taken out of a With-Profits Fund. This will be through the use of an MLA, which brings the amount paid more closely in line with the value of the underlying assets.

In this way the continuing investors are protected from a reduction in their return which would occur if excessive payments were made to shorter-term investors.

When will the MLA not be applied?

Your policy may guarantee that in certain circumstances, for instance at the end of a specified policy term or on earlier death, an MLA will not be applied. There may be other circumstances depending on the type of policy; please refer to your original policy literature.

Which factors influence the decision to apply the MLA?

MLAs are applied when there are opportunities for some investors to take money out of the With-Profits Funds gaining an advantage against remaining investors.

In determining whether MLAs need to be applied, and at what level, market conditions are taken into account. MLAs will most likely be used following a sustained fall in investment markets. MLAs may also be applied when there is a significant difference between the bonuses and the total return on the underlying assets over the period of investment.

In addition, the amount taken from a With-Profits Fund in respect of your policy, including amounts withdrawn in the previous 12 months, may be considered.