Equity Biased Fund (EBF)

The EBF Bonus Component effective from 1 April 2018 is 6.6% p.a.

EBF returns

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 – From April 2019, this rate is usually announced monthly, in arrears (the rate for each month is worked out on the last day of that month). The Schemes' actuary calculates the Bonus Component.

The calculation of the Bonus Component is based on an independent range of investments with the aim of providing returns from a mixture of different assets, with the largest investments related to stock markets. The returns therefore rise and fall in line with the performance of the stock markets. The returns are smoothed over time so that some of the investment returns in years of good performance are kept in reserve to cover years when returns may not be so good. This makes sure that the return in the EBF can never be negative but it is possible for the Bonus Component to be zero. The Bonus Component contains an allowance for the cost of making sure that the overall EBF return is no lower than the return achieved by the Guarantee Component. The cost of providing this guarantee is currently 2.3% a year, which is deducted from the Bonus Component rate.

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 the Bonus Component declared for that month.

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 NAPS 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

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* 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