What is a with-profits pension and how does it work?

How do with-profits pensions work? Your money joins a pooled fund and earns bonuses, smoothed over time, with guarantees that can be lost if you leave.

A with-profits pension does not track the stock market day by day. The provider shares the fund's profit out as bonuses, holds some back in good years, and may adjust the payout if you leave at the wrong moment. The terms vary from provider to provider and from policy to policy. An FCA-authorised adviser meets this kind of paperwork often, and this page's form arranges a no-cost call-back. This guide explains the vocabulary first.

How do with-profits pensions work? Pooled money, bonuses and a guaranteed floor

Your contributions are pooled with other savers' money and invested in a mix of assets, and what you get back depends on the bonuses the provider adds, not on a unit price that moves with the market. Aegon describes it as a pool whose profits and losses are shared among the investors, and Aviva says its funds hold shares, bonds, property and money market investments.

There are two broad kinds of policy. Aviva says you can tell which you have from your annual statement: a unitised policy mentions units and shows a unit value, a conventional one does not. The unit price of a unitised plan reflects the provider's bonus decisions rather than the market directly.

Many policies carry a guaranteed minimum, but it is tied to a date or event. Aegon puts it this way: “Whilst with-profits investments may include guarantees of minimum payouts at certain defined points in time, we don't otherwise guarantee the amount you'll receive back.” Aegon also says its with-profits products are closed to new investment, so a plan you hold is likely to be an older one. Its New Generation With-Profits plans are a variant with no bonuses and no guarantees, so check which kind you have before reading on.

Regular bonuses and final bonuses: what is added, and when

A regular bonus (also called an annual bonus) is the steady addition. Aegon calls it a discretionary percentage added each year. Aviva's fund guide warns that it is not the same as interest from a bank or building society and that Aviva does not guarantee to add one each year, while Prudential says it can change the rate at any time without prior notice. On a conventional Aviva policy, a regular bonus once added is guaranteed to be paid at the chosen retirement date, the maturity date or on death; unitised plans and other providers differ.

A final bonus (also called a terminal bonus) is the extra paid when you take the money out. Aegon describes it as “a non-guaranteed amount that may be added to the value of your plan when a claim is made on the plan.” Aviva says final bonuses are added only where needed to give a fair payout, and reviews the rates usually twice a year. The bonus can shrink: in Aviva's own explainer of a large market fall, the final bonus “might be reduced, or even removed entirely.”

Aegon's published figures show a bonus and a guarantee parting company. Its rate table for the Pensions WPE fund lists nil both as declared on 31 December 2025 and as the interim rate from 1 April 2026, yet the fund carries a guaranteed minimum return of around 5.5% a year if units are held to the originally selected pension date. For declared rates on two other named funds, see Standard Life's with-profits pension funds and Aviva's pension bonus rates.

Smoothing: why the value does not follow the market

Smoothing is why the plan looks calmer than a share fund. Prudential describes holding back “some of the investment returns in good years with the aim of using this to support bonus rates in the years where the investment returns are lower.” Standard Life's PPFM gives a sense of scale: its current practice is not to change regular bonus rates “by more than 0.5% (for example from 2.0% to 1.5%) at any declaration.”

Smoothing has limits. Prudential says it “can’t stop the value of your plan reducing if investment returns have been low”, and Standard Life says it aims to even out across all its policyholders over time, which leaves any one person's payout higher or lower.

Online calculators for final bonus are a poor guide, because the provider sets the rate and it depends on the policy. Aegon says its traditional-plan rates are based on the term at the point of claim and its unitised rates on the month and year of investment. Your provider holds the rate for your plan; on a free call-back arranged with this page's form, an adviser explains how to ask for it.

Market value reductions: when providers say they apply

A market value reduction (MVR) cuts the payout when the fund's assets are worth less than the plan, so that people who stay in are not left worse off. Prudential's guide says it means “you’ll get less than the value of your plan, as shown in your last statement.” Its example: five investors hold £10,000 each in a £50,000 fund that falls 20% to £40,000. With no adjustment the one who leaves gets £10,000 and the four who stay are left with £7,500 each; an MVR that pays the leaver £8,000 spreads the fall more fairly.

Prudential applies MVRs “on a case-by-case basis”. It says it may decide to apply one if your plan is worth more than the assets your money is invested in and you switch funds (including between with-profits funds), cash in or transfer, take early or late retirement, make a full or partial withdrawal where allowed, pay adviser charges from a with-profits fund or take certain regular withdrawals. It adds: “You’ll only be affected by an MVR if you want to withdraw or transfer your money.” Aviva describes an MVR as applying to people leaving at times other than those set out in the terms, particularly after a large or sustained market fall, and Aegon says MVRs can apply to its traditional and unitised funds.

The same documents say when one will not apply. Prudential guarantees none on death or at the selected retirement date of a pension plan, among other points; Aviva gives death and an ‘MVR free guarantee’ at the selected retirement date on certain pensions, though its FLC sub-fund guide says one may still apply on that date to a pension if you have paid in extra single payments, transfers or switches in the previous five years. Prudential also reserves the right to change its MVR practice without prior notice, so whether one applies to you today is something only your provider can confirm.

Guaranteed annuity rates and other guarantees you can lose

A guaranteed annuity rate (GAR) is a promise about the income your pot buys at retirement. “A guaranteed annuity rate is a valuable benefit, and usually means you can get a higher income from us than you could from another company,” says Aviva. Not every policy has one; Aviva says some pension policies may, and tells readers to check their policy document. What a guaranteed annuity rate is and whether one is worth keeping have their own guides.

Minimum-value guarantees come with conditions. Aegon says: “Most with-profits investments offer a minimum guaranteed return, providing you keep your policy for a specified length of time. If you switch or transfer out of with-profits, or cash in your investment before that time, you'll lose this guarantee.” Aviva's FLC sub-fund guide says the same of its conventional policies: there are no guarantees if you cash in early.

Size and terms differ by fund and policy. Aegon's pension examples include around 3% a year on its Deposit Administration Fund 2, as long as units are held from investment to the originally selected pension date; that is one provider's figure for one fund. Guarantees also cost something: Aviva says its MVR free guarantee is paid for through the fund's charges, which may make them higher than on other funds.

Where to find the figures for your own with-profits pension

Three documents answer most questions. Your annual statement shows the value and whether the plan has units; Aviva says regular bonus details can usually be seen there too. Your policy conditions set out the guarantees, and Aegon points to them for the exact details. The third is the Principles and Practices of Financial Management (PPFM), which each provider publishes.

Aviva says the PPFM “sets out the technical detail” and that its With-Profits Summary “explains how the fund works in a clear and simple way”; sub-fund questions go to aviva.co.uk/ppfm. Standard Life publishes its current PPFM at standardlife.co.uk/withprofits, and says the contract prevails if the two conflict. Prudential refers readers to pru.co.uk/ppfm.

A workable order is the statement for the plan type, the policy conditions for guarantees and dates, then the PPFM or summary for how bonuses and MVRs are set. If papers are missing or unclear, ask the provider for written answers; how to read a pension statement helps with the figures. Want the statement, conditions and PPFM looked at as one picture? Through this page's form you can get a call-back, and an adviser then goes through the three documents with you, free.

Is a with-profits pension any good?

It depends on the policy. Smoothing and guarantees are the attraction; the costs are less visible. Standard Life says its with-profits funds have no explicit annual management charges but that charges are allowed for in the value, and “There may also be a deduction for the cost of guarantees.” Aviva says its with-profits fund is classed as low to medium risk, and that with-profits investments suit the medium to long term, which it puts at ideally five to ten years or more. The value can still fall: “As with any investment the value of with-profits investments can go down as well as up and may be worth less than was paid in,” Standard Life warns.

Whether to move one is a separate decision, turning on the guarantee, any final bonus and any MVR; should I transfer my with-profits pension sets out what to check, and Pension Wise offers free government-backed guidance.

With-profits terms in plain English

Is a final bonus the same as a terminal bonus?

Yes. Aegon uses both names for the same non-guaranteed amount, which may be added when a claim is made on the plan.

Will I get the value on my last statement?

Not necessarily. If an MVR applies you get less, according to Prudential, though it guarantees none at certain points such as the selected retirement date. Your provider can say which applies.

Can I take a with-profits pension earlier or later than planned?

You may be able to, but Prudential lists early or late retirement among the occasions when it may apply an MVR. Terms differ between providers, so check yours first.

What happens to my bonuses if markets crash?

Smoothing softens the blow but cannot remove it, and Aviva expects bonuses to be smaller in poor investment years than in good ones. Anything guaranteed on your policy is guaranteed only on the conditions in your documents.

Still unsure what a with-profits term in your papers means? An adviser can explain it on a free call-back; the enquiry form here is where you ask.

Sources, read 29 October 2026: Prudential's with-profits page and market value reduction guide (PRUS6165); Aviva's with-profits page and sub-fund guide (HL02001); Aegon's with-profits information and guarantees pages; the Standard Life PPFM and pension guide (UWP1P).