Bonds - Frequently Asked Questions
How much can I invest in the Bond?
You can invest a lump sum of between £1,000 and £50,000 into the Bond. If you re-invest the maturity benefits of your existing plan the minimum amount you can invest is £500.
You can take out more than one Foresters Friendly Society Bond, although you should be aware that different terms may apply depending on when you take out your subsequent Bond.
Can I make partial or regular withdrawals from my Bond?
Partial withdrawals can be taken at any time subject to a minimum withdrawal of £250 and that the remaining value of your Bond does not fall below £250.
You can take regular withdrawals from your Bond, if the value of your Bond is in excess of £5,000 at the time of starting withdrawals.
If you wish to take regular withdrawals on a monthly, quarterly, half yearly, or yearly basis you may choose to do so by ticking the appropriate box on the Application Form.
Alternatively, if you already hold a Bond or Bonds with Foresters Friendly Society, you may choose to start withdrawals, subject to three months prior notice and meeting the other conditions as stated above.
If the value of your Bond falls below £5,000 at any time the regular withdrawals will cease. The maximum regular withdrawal that can be taken at any time is 5% of your initial investment, not including any bonuses allocated to your Bond. The minimum regular withdrawal is £50.
WARNING - with partial or regular withdrawals, there is always the risk that your chosen amount of withdrawal could reduce the value of your Bond to an amount less than you originally invested. For instance, if you choose to withdraw 5% per annum and the bonuses allocated are less than 5% per annum, your initial investment would fall.
Taxation implications of partial, regular and full withdrawals
Partial withdrawal - there are no immediate taxation implications for any partial withdrawal as long as no more than 5% of the initial investment is withdrawn annually. This is because current taxation rules allow for the withdrawal of the full initial amount invested spread over a 20 year period from the issue of the Bond, without any taxation implications at the time of these withdrawals.
This means, for example, that if you have not made a withdrawal from your Bond in the first five full years since issue, you could take up to 25% as a partial withdrawal without any taxation implications.
If you choose to make a partial withdrawal in excess of the 5% annual limit this would bring about a Chargeable Event that we would have to inform HM Revenue and Customs of, which may mean that there would be an amount of tax to pay at that time.
Full withdrawal - full withdrawal is always considered to be a Chargeable Event, so Foresters Friendly Society would have to inform HM Revenue and Customs. As growth in the Bond is considered to be basic rate tax paid, there are currently no taxation implications for basic rate tax payers.
Only those who are higher rate tax payers, or may be pushed over the threshold for the higher rate, during the financial year of withdrawal would be affected. In this case there would be an amount of tax to pay which is currently set at the difference between the basic rate and the higher rate of Income Tax. It is recommended that anyone in this category should obtain advice before making a withdrawal. Tax rules may change.
What happens if I cash-in my Bond?
You can cash-in your Bond whenever you want. The cash-in value of your Bond will depend upon the amounts you have invested, the investment returns that have been achieved and our costs. In favourable investment conditions we may also add a final bonus to the policy value, provided that the policy has been in force for at least 5 years.
Conversely, in adverse investment conditions we may apply a Market Value Reduction (MVR) to reduce the policy value.
What is a Market Value Reduction (MVR)?
This is a deduction we may make when you fully or partially cash-in your Bond. We will not apply an MVR on death. Its purpose is to be fair to both Members leaving the fund and those staying by ensuring that the cash-in value is not unfairly higher than the market value of the policy's assets and that a fair share is left for the remaining Members.
This adjustment could have the effect of reducing the value of your Bond at that time and in some circumstances could mean that you get back less than you have paid in.
Where is the money invested?
Your money is invested in Foresters Friendly Society's with profits fund. By spreading the money paid into the fund across a number of different types of investments you benefit from the exposure to a range of asset classes which may include stocks and shares, property and cash. A further advantage of this approach is that if the return of any one particular asset type is very poor, your investment may be protected from the full impact of this fall as the other assets forming part of the overall investment may perform better. Thus the fall in value of one asset class (e.g. shares) may be cushioned by the potential better performance in another asset class (e.g. property).
How are bonuses decided?
Depending on how the underlying assets in the fund perform, and the costs incurred, at the end of each year we aim to declare an annual bonus. In addition when you decide to cash in your Foresters Bond we may add a final bonus depending on the overall investment growth that has been achieved and expenses incurred. The addition of bonuses is not guaranteed and therefore it is possible that the Bond might not receive any annual and/or final bonus.
The Bond is different from a Bank or Building Society account where only interest is added because the growth of the investment depends on the performance of the underlying fund and not the interest rate on the account. Although in some investment conditions the growth in the Bond might not be as great as that on an interest only account, investing in this way means that there is the potential for growth over and above the level which might be achieved on interest only accounts.
A typical example:
• These figures are only examples and are not guaranteed. They are not minimum or maximum amounts. What you could get back depends on how much is actually invested and for how long, how the investment grows and on the tax treatment of your investment.
• You could get back more or less than this.
• All Friendly Societies use the same assumed rates of growth for illustrations but their charges vary.
• Do not forget that inflation would reduce what you could buy in the future with the amounts shown.
How will the charges affect my investment?
There is an Annual Management Charge which is initially set at 2% of the value of your Bond, which will be taken into account when applying bonuses. It will not exceed 3% of the value of your Bond in any one year. The charges are designed to cover our costs for administering the Bond on your behalf. The effect of the charges on an initial investment of £5,000 assuming growth of 6% a year is as follows:
WARNING: If you cash in during the early years you could get back less than you have paid in.
What are the deductions for?
• The deductions include the cost of expenses, charges, any surrender penalties and other adjustments.
• The charges, expenses and other deductions used in this guide are best estimates based on current experience. They could vary in the future.
• The bottom line in the table shows that over 10 years the effect of the total deductions could amount to £1,550.
• Putting it another way, this would have the same effect as bringing investment growth from 6% to 4.0% a year.
If you would like an illustration specific to your own circumstances or to see the effect of withdrawals, please contact us.
What is the tax situation with regard to my Bond?
Foresters Friendly Society pays tax on Income and Capital Gains within the fund. For withdrawal taxation implications please refer to the 'Taxation Implications of Partial, Regular and Full Withdrawals' section earlier in this document. If you receive age related personal allowance or child tax credit, these could be reduced when you take proceeds from your Bond. Gains from the Bond on death, cash-in or surrender including any partial withdrawals are chargeable at the marginal rate of tax for higher rate taxpayers. Tax rules may change in the future.
What happens if I die?
If you die the proceeds from your Bond will form part of your estate for Inheritance Tax purposes.
However, you can nominate a beneficiary to receive up to £5,000. The amount payable on death is 101% of the contributions you have paid in (less any withdrawals) plus any attaching bonuses.
I'm not sure if a Bond is right for me. What should I do?
If you are unsure as to the suitability of this product you should seek advice from an Independent Financial Adviser. You may have to pay for this advice.
