Make your money work harder with this medium to long term with-profits investment, with the option to take income withdrawals with no immediate tax implications and a capital guarantee after five years.
Why choose this plan?
- Invest a lump sum of between £5,000 and £100,000
- Potential for capital growth through bonuses
- Policy value could be reduced if withdrawn during adverse investment conditions
- Capital guarantee after five years
- Take between 2% - 5% income - monthly/quarterly, half yearly or annually
- Must be aged 18+
- A surrender penalty will apply if cashed in within the first five years
Please read the product Q&As and Key Features document before processing.
What is the Income Bond?
The bond is a single premium life policy designed for a minimum investment period of five years, which will allow you to take a regular income from your capital - perhaps during your retirement. There is also the potential for some capital growth as your lump sum (the initial investment) is invested in our with-profits fund from which, depending on investment performance, we aim to pay bonuses each year. On encashment and subject to the conditions outlined below, you will receive the capital balance (the initial investment less income and partial withdrawals) plus bonuses added during the life of the policy.
For additional peace of mind the bond also has a valuable capital guarantee after five years.
How much can I invest in an Income Bond?
The minimum investment is £5,000 with a maximum in any one calendar year (January to December) of £100,000 either per individual, if held solely, or in the case of joint life applications.
Who can invest in an Income Bond?
Anyone over the age of 18.
Can I invest in joint names?
Yes, the investment can be held in joint names.
Why should I invest with Sheffield Mutual?
As a mutual friendly society we have no shareholders to satisfy, therefore all our surplus profits are shared with our members. We specialise in offering with-profits policies, which offer greater potential returns by investing in a range of different assets - without exposing your capital directly to the stock market.
Where will my money be invested?
The Society invests in a range of different assets with the aim of providing a higher return in the medium to longer term (5-10 years+) than that achievable in a bank or building society account. We will look to achieve this by maintaining a spread of investment assets that will provide a low to medium risk bond, making it an option for individuals with a more cautious approach to investing their money.
Examples of the types of assets we invest in are:
- The shares of UK companies though we may also have a very small exposure to some overseas companies to provide diversity. These provide income from dividends with the possibility of capital growth.
- Investments such as Government Gilts or Corporate Bonds which provide fixed interest.
- Property - The Society owns a portfolio of properties which provide income from rentals and potential capital growth.
- Fixed interest returns from a small portfolio of Commercial Mortgages.
The proportion held in each of these can vary depending upon market conditions but you can obtain a guide of the spread by contacting the Society’s office.
We seek to adopt an ethical approach to investing and it is our policy not to invest knowingly or directly in industries relating to armaments, tobacco, gambling or pornography.
How are bonuses calculated and paid?
We invest our funds as described in the previous section and receive a return on those investments which can vary from year to year. At the end of March or early April we review the returns achieved during the previous calendar year in consultation with our Actuary, and the Committee of Management declares a bonus rate for each policy type for that period. Obviously the rate varies depending upon overall investment returns and, therefore, bonuses are not guaranteed to be paid at the same rate, or at all, in future years.
Bonuses are calculated at the appropriate rate based on the capital balance (the initial investment less income and partial withdrawals) plus any bonuses added in previous years. On encashment and providing there is no Market Value Reduction (see below) you will receive the capital balance plus bonuses added during the life of the policy.
The Society also tries to 'smooth' returns over the life of the policy by retaining some of the investment return in good years to maintain bonus rates in poorer years. However, to ensure you receive a fair share of returns on your policy over its lifetime there may be an additional terminal bonus paid on maturity. Payment of this type of bonus depends entirely on investment performance and the rate at which annual bonuses have been added and is not guaranteed.
Are there any guarantees?
In the event of adverse investment conditions the Society reserves the right to apply a Market Value Reduction (MVR) to the capital balance and any bonus already added. However, the Society guarantees that the application of an MVR after five years will not reduce the proceeds below the capital balance (the initial investment less income and partial withdrawals).
How long does the money have to remain invested?
The bond has no fixed term but the recommended minimum investment period is five years. It is possible to surrender your bond within the first five years by giving one months notice, but doing so will incur a surrender penalty. Should you need to withdraw some of your capital at a future date we can invest your lump sum in up to three separate policies, with a minimum of £5,000 per policy, which will enable you to withdraw part of your investment without having to surrender (cash in) your entire investment. However, if you surrender a policy within the first five years a surrender penalty will be incurred and you may receive back less than you invested. Any withdrawals of this nature will also affect the level of income provided from your capital.
In cases where withdrawal or surrender occurs the Society reserves the right to apply a Market Value Reduction (MVR) in times of adverse investment conditions to ensure you receive your fair share and other members are not disadvantaged. An MVR will not be applied in the event of the policy becoming a claim as a result of the death of the single policyholder, or the death of the second policyholder for joint life policies.
How is income paid from the bond?
You can take income withdrawals of up to 5% of the initial capital investment each year, without any immediate tax implications (see below), until the total you have withdrawn equals the initial investment amount. Once you have made withdrawals equal to your initial investment this allowance stops. Any of this annual allowance that is unused can be carried forward to future years so, for example, if you have not made an income withdrawal from your bond in the first five full years since issue, you could take up to 25% as a partial withdrawal without any immediate tax implications.
You can choose the amount you would like as annual income of between 2% and 5% and this will be paid directly to your bank account either monthly, quarterly, half yearly or annually on or around the 20th of the month. Please note that the minimum investment for taking monthly income withdrawals is £10,000.
Taking a lower amount as income will allow greater opportunity for capital growth over the years as there is always the risk that your chosen amount of income withdrawal could reduce the value of your bond to an amount less than you originally invested. For example, if you choose to withdraw 5% per annum and the bonuses added are less than 5% per annum, your initial investment would fall.
How the income works... (344.8K, .PDF)
What happens if I die?
The amount payable on the death of a single policyholder, or the death of the second policyholder for joint life policies, is 101% of the capital balance (the initial investment less income and partial withdrawals) or the value of the policy (the capital balance plus added bonuses), whichever is greater.
Is there any tax liability?
The money you save is invested in a fund on which the Society pays tax and tax at the basic rate may be treated as paid on any taxable gain, which means there is likely to be no further tax to pay unless you are taxable at the higher rate. However, a gain on which tax is treated as paid may have an effect on your tax liability if you qualify for age-related allowances or reliefs, or you are receiving tax credits.
There are no immediate tax implications for income withdrawals 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. Any potential income tax liability is deferred until the bond comes to an end, at which point a final calculation is made to see if there is any taxable gain. Currently there are no further tax implications for basic rate taxpayers.
If you die the people who inherit your bond may have to pay inheritance tax and some income tax.
All references to taxation are based on the Society’s understanding of current tax legislation and practice, which may change in the future.
Are there any charges?
The Society makes a charge of 5% of the initial premium in year one to cover the costs of setting up the policy and subsequently 0.6% of the fund each year for ongoing management. The charges are deducted from the overall fund and taken into account when we calculate the level of bonuses we are able to pay.
What about membership?
Yes, you will become a voting member of the Society with access to various discretionary benefits when available, such as optical/dental grants.
How do I start my bond?
Simply click on the “Get A Quote / Apply Now” button where you will have the option to:-
- Get a quote online
- Apply online or
- Download an Application Pack
View/Download/Print :- Our Product Brochure and Key Information Document
If you choose to apply online, this will be submitted to the office where we will check and print out your application and then post it out to you to sign and return.
If you choose to complete a paper application please follow the checklist provided in the application pack and send your application to :- Sheffield Mutual Friendly Society, FREEPOST RLUC–XKZE–RJAT, 3 Maple Park, Tankersley, Barnsley, South Yorkshire S75 3DP along with a cheque for the initial investment made payable to "Sheffield Mutual" (where applicable). If you prefer you can make your payment by debit card over the phone.
Where can I get further help or information?
Our friendly and knowledgeable staff would be pleased to provide you with factual information about the Society’s products and services, so you can make your own choice about how to proceed. No advice or recommendations will be given and if you are in any doubt as to the suitability of a product, you should seek advice from a suitably qualified financial adviser, which may incur a fee.
Do I need to provide any additional information?
To comply with regulations, the Society will require confirmation of your identification and address. We’ll aim to do this using an electronic verification system, but reserve the right to ask for appropriate documentation from you, if this is not possible. We don’t normally require identity documents from existing members.
The application process should typically take around 10 mins