Equity Biased Fund (EBF)
The EBF Bonus Component effective from 1 April 2018 is 6.6% p.a.
The EBF has an investment objective to produce a return, expressed as a percentage interest rate, which consists of two parts – a Guarantee Component and a Bonus Component.
Guarantee Component – this rate is based on the return during each calendar month on the Sterling Overnight Index Average (SONIA) (or any other index which from time to time the Management Trustees consider is appropriate having taken suitable advice).
Bonus Component – this rate is usually declared by the end of April each year. It is effective from 1 April for the year ahead and remains the same for the whole of the Scheme year. The Bonus Component is calculated by the Scheme’s Actuary. It is currently based on an investment portfolio equivalent to the NAPS asset allocation (or such other portfolio which from time to time the Management Trustees consider is appropriate having taken suitable advice), as this is a reasonable reflection of a long-term investment strategy for AVCs. When determining the Bonus Component the Actuary compares the actual rate of return achieved by the portfolio in recent years to the Guarantee Component and then calculates a weighted average return in excess of the Guarantee Component. The Bonus Component contains an allowance for the cost of the Guarantee Component. This is reviewed from time to time and is currently 4.0%. It is possible for the Bonus Component to be zero.
How interest is credited
Money that is invested in an EBF Account for the whole of a calendar month will be credited with interest for the month at a rate comprising the Guarantee Component declared for that month plus one-twelfth of the Bonus Component declared for the Scheme Year in which that month falls.
Full details of how interest is calculated and applied to EBF Accounts are available in the EBF Operating Rules.
Classification of the EBF
EBF Accounts are not classed as money purchase benefits, but as ‘cash-balance’ or ‘non-money purchase’, which are defined benefit in nature. This is because the EBF has an element of investment return that is guaranteed.
If APS was ever to wind up with insufficient funds to pay all of the promised benefits in full the classification of the EBF as a non-money purchase arrangement could result in money held in the EBF being used partly or wholly to make good other promised Scheme benefits. The exact impact would depend on the funding position in the Scheme at the time it wound up. You can read more about this in the ‘Important change to legislation affecting AVCs’ article on the ‘News’ page.
Total annualised interest rates so far this year
* Rates include bonus component of 6.6% p.a. up to 31 March 2019
Actual returns over the past 5 years:
Total interest rate
Bonus rate included in total interest rate