Stakeholder Pension Plan

(Transfer payment)

Before you buy a Stakeholder Pension Plan, we want you to be sure that you know

what the decision will mean for you: what this plan is, how it works, and what the risks

are. This document gives you the main points about the pension plan you’re buying.

Please read it carefully and keep it with your Stakeholder Pension Plan documents.

Its aims

• To offer you a way of saving for your retirement.

• To build up a sum of money in a tax efficient way, which will buy you a pension when you retire.

Your commitment

• To transfer the cash value of the retirement benefits you have built up under a previous occupational pensionscheme, Stakeholder pension plan, personal pension plan or pension policy into the plan. This is known as atransfer value.

• If you transfer from an occupational pension scheme with defined benefits, you cannot cancel or, normally, returnto your previous scheme. You should consider the transfer to be a commitment until your chosen retirement date.

• To let the plan build up until you choose to take a pension, and then to use it to buy your pension.

• You cannot cash in this plan at any time.

Risk factors

• What you get back when you retire isn’t guaranteed. Your pension may be lower than illustrated. This couldhappen for a number of reasons, for example if:

– the performance of the fund(s) you have chosen is lower than illustrated

– interest rates when you retire are lower than illustrated

– you start taking your pension before your chosen retirement date

– tax law or tax reliefs change

– our charges increase in the future.

• In addition, for with profits investments, your pension may be lower than illustrated because of the application ofany smoothing. Please see the enclosed With Profits Summary (WP82) for details.

• Your plan may invest in different types of investments, including investments based on stocks and shares, whichcarry different levels of risk. The value of your investment can fall as well as rise and you may get back less than youpay in.

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KEY FEATURES

from Standard Life

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• If you cancel the transfer payment during the 30 day cancellation period, you may get back less than you'vepaid in. This is because we may deduct from the amount you get back any fall in the investment value duringthis period.

• There is no guarantee that what you get back will be greater than what you would have received had youremained in your previous scheme or policy.

• If any part of your transfer value relates to a period when you were contracted-out, you can’t start taking yourcontracted-out pension before age 60.

• A usual feature of investing in our Stakeholder With Profits Fund is that we apply smoothing to even out the upsand downs of investment performance. We may reduce or remove smoothing in certain circumstances whichmeans that your benefits could be lower than they otherwise would have been. For more information aboutinvesting in our Stakeholder With Profits Fund, please read the enclosed With Profits Summary (WP82).

• For as long as Standard Life is a mutual company, with profits policyholders may share in the performance(profits and losses) of the Standard Life group. We aim to make profits that we may use to make the payouthigher than it would otherwise have been. There is, however, the possibility that losses could occur which couldresult in lower payouts. In the past, for Stakeholder With Profits investments, we have applied discretionaryadjustments, known as benefits of mutuality (please see 'What are the discretionary adjustments?'). However, inOctober 2004 we announced that we intend to reduce benefits of mutuality payments and that we expect thatthey will be phased out over the two years from that date.

Questions and answers

What is a Stakeholder Pension Plan (Transfer payment)?

• It’s a savings plan that lets you save for your retirement in a tax efficient way.

• You can transfer the cash value of the retirement benefits you have built up under a previous occupationalpension scheme, Stakeholder pension plan, personal pension plan or pension policy into the plan. This is known as a transfer value.

• If you have previously been contracted-out of the State Earnings Related Pension Scheme (SERPS) or itsreplacement, the State Second Pension (S2P), you can also transfer an amount relating to guaranteed minimumpension, section 9(2B) rights or protected rights. This is known as a protected rights transfer value and will beused to provide you with an income which replaces some or all of your additional State pension.

• Stakeholder plans were introduced by the Government to encourage people to save for their retirement. Theyhave been available since 6 April 2001.

Am I eligible?

• You are eligible for this plan as long as you’re under 75 and have a transfer value from a previous scheme orpolicy. However, if the transferring scheme is an occupational pension scheme, you are not eligible if you arereceiving benefits from that scheme.

How flexible is it?

• If you have other retirement benefits built up under previous occupational pension schemes, Stakeholderpension plans, personal pension plans or pension policies, you can also transfer the cash values of those benefitsinto this plan. See “Can I pay more into the plan?” later in this document.

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What might I get when I want to retire?

• Your final plan value will depend on:

– how much is paid in

– how long the payments are invested for

– the performance of the fund(s) you have chosen

– our charges (see ‘What are the charges?’)

– in addition, for with profits investments, the way we smooth returns and any discretionary adjustments(please see 'What are the discretionary adjustments?'), subject to any applicable guarantees on charges.

• Your plan will be used to buy a pension, which is an income for the rest of your life, from us or anotherauthorised pension provider. The amount of pension will depend on a number of factors at the time,for example:

– interest rates

– your age and state of health

– life expectancy rates

– the type of pension you choose.

What choices will I have when I retire?

• You can use all of your final plan value to buy a pension, which will be taxable. Or you can normally take up toa quarter of the plan value as a tax-free sum and a smaller, taxable pension. The scheme you transfer from willtell us if there are any restrictions on how the plan value may be used.

• You can choose a pension that stays the same each year, or one that’s index-linked or goes up by a fixedpercentage each year.

• You can choose a smaller pension for yourself so that you also provide a pension for your husband, wife or otherdependant(s) after you die.

• You can start taking a pension at any time between the ages of 50 and 75, including while you’re still working.

– You must start taking it by age 75.

– You can take the pension in stages if you want to.

– You can normally start taking a pension before age 50 only if you’re in severe ill health, or if the InlandRevenue has approved this for your job.

• If any part of your transfer payment includes protected rights, you won’t be able to take your pension from yourprotected rights fund until you’re 60. You can’t take any of it as a lump sum.

• You can buy your taxable pension from any authorised pension provider.

Can I pay more into the plan?

• You can pay regular or single payments into the plan. You can find more information on this option in ourseparate Stakeholder Pension Plan Key Features Document (SPP17).

• If you have other retirement benefits built up under previous occupational pension schemes, Stakeholderpension plans, personal pension plans or pension policies, you can also transfer the cash values of those benefitsinto this plan. There’s no guarantee that doing so will increase your total pension.

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What about tax?

• The funds you invest in will grow free of UK Capital Gains Tax.

• You can normally take some of your fund as a tax-free lump sum when you convert the plan into an pension.

• Your pension will be taxed in the same way as your earned income.

• Your dependants won’t normally have to pay tax on any lump sum they get if you die before you retire.

• Tax and legislation may change. The value of tax relief will depend on your financial circumstances and maychange in the future. The information we’ve given here is based on our understanding of law and HM Revenue& Customs practice when we published this document.

Where are the payments invested?

• We invest 100% of each payment. Each fund is made up of units and we use your payments to buy units in thefund(s) you choose.

• We offer Lifestyle profiles, a range of investment-linked pension funds and a with profits fund for you tochoose from.

• If you invest in a Lifestyle profile (also known as a Pension Fund Investment Strategy or "PFIS" profile) and youwish to combine this with another investment option, you can only combine it with the Stakeholder With ProfitsFund. You cannot combine it with any other investment fund or Lifestyle profile.

• If you are starting a Stakeholder Pension Plan and do not specify an investment choice, we will invest allpayments in the Stakeholder Balanced Managed Lifestyle profile.

• If you are already making payments into this Stakeholder Pension Plan and do not specify an investment choice,your transfer payment will be invested in line with your current investment instructions, unless:

– you are currently invested 100% in the Stakeholder With Profits Fund, OR

– you are currently invested in a combination of the Stakeholder Balanced Managed Lifestyle profile and theStakeholder With Profits Fund.

If either applies, your transfer payment will be invested in the Stakeholder Balanced Managed Lifestyle profile.

• Lifestyle profiles allow us to automatically switch your investments into lower-risk funds as you get closer toretirement. The Stakeholder Balanced Managed Lifestyle profile initially invests in the Stakeholder ManagedFund. Eight years before your retirement date, the profile starts switching the value of your pension into acombination of the Stakeholder Managed Fund, Stakeholder Cautious Managed Fund, Stakeholder ProtectionFund and the Stakeholder Sterling Fund.

• For more information on how this works, please ask your financial adviser or nearest Standard Life office for our'Stakeholder Pension Plan – Lifestyle profiles' leaflet (GSPP41). For information on the funds within the Lifestyleprofiles, please ask for a copy of 'Your Pension Investment Choices' (SPP5).

• You can switch your investments in and out of the funds on offer to change the mix of investments. You canonly invest in 12 of our funds at any time. The maximum number of different funds you can invest in duringthe term of your plan is 20.

• If you choose our investment-linked funds, the price to buy or sell one unit in each fund depends on the valueof the investments that make up the fund. Your plan value is based on the total number of units you have ineach fund. If the unit prices rise or fall, so will your plan value.

• The assets backing the Stakeholder With Profits Fund are a mix of investments such as company shares, propertyholdings, bonds (which are loans to governments or companies) and cash deposits. Quarterly information onthe asset mixes for the different classes of with profits investment is published on our website,www.standardlife.co.uk

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– The Stakeholder With Profits Fund is split into units. If you choose with profits, we allocate you a number ofunits that represents your investment in the fund. The value of your pension fund at your chosen retirementdate depends on the number of units you have in the Stakeholder With Profits Fund and the unit price thatapplies at that time.

– The unit price is based on the value of the assets backing the Stakeholder With Profits Fund, after allowingfor any smoothing. We aim to produce smoothed investment returns for policyholders invested in theStakeholder With Profits Fund. The value of an investment in this fund can fall as well as rise. In certaincircumstances we may reduce or remove smoothing to maintain a fair level of future payouts to everyonestill invested in the fund.

• For more information about our funds, please ask your adviser or your nearest Standard Life office for our leafletYour pension investment choices (SPP5). For further information on our Stakeholder With Profits Fund pleaserefer to our With Profits Summary (WP82).

What are the charges?

• We charge for managing your plan and investments. We take the charges from the fund value.

• There is an annual charge of 1% of the value of the funds you accumulate. If your fund is valued at £500throughout the year, this means we deduct £5 that year. If your fund is valued at £7500 throughout the year,we will deduct £75 that year.

• If your fund exceeds £25,000 we reduce the effect of the yearly charge by adding extra units in your fund tothe value of 0.1% of your fund each year. If your fund exceeds £50,000 we add extra units to the value of 0.2%of your fund each year. The figures are current values and could change in the future.

• If you’ve asked for a personal illustration, it will show our charges and their effect on the value of yourStakeholder Pension Plan over the time you have the plan.

• We’ll continue to take charges each year even if you stop making payments. This could mean that if you stopmaking payments and don’t restart them, our charges could reduce your plan value by the time you retire.

• We can increase the charges we make. We may do so in the future if our costs are higher than expected.This might happen if, for example:

– tax rules change

– our staff or overhead costs are more then we expected

– our income from charges is less than we expected.

However, as the Government has set a maximum charge that can apply to Stakeholder Pensions, we will notincrease the charges on your plan above this amount.

• We may also alter the discretionary deductions we take from our funds (please see ‘What are the discretionaryadjustments?’

What are the discretionary adjustments?

• We may make discretionary adjustments to reflect costs incurred in managing a fund. For example, if the fundmanager experiences a significant number of investors leaving the fund and needs to apply an adjustment toreflect the costs of selling assets.

KEY FEATURES

For with profits investments only:

• We may make discretionary adjustments in respect of any share in the financial results (profits and losses) of theStandard Life group. Any such adjustment would be made as a reduction or increase in the fund managementcharge, subject to any applicable guarantees on charges.

What happens to the plan if I die before I retire?

• We’ll pay the plan value at the date of your death.

• We’ll pay the amount due in a lump sum unless part of your plan has to be used to buy a pension for yourhusband, wife or other dependants. This could happen if:

– you’ve made a transfer payment into your plan, directly or indirectly, from a company pension scheme, or

– you have a separate fund because you’ve contracted-out of S2P.

• If you’ve set up your plan under trust, we’ll pay the lump sum to the people you’ve named as trustees. If youhaven’t, we’ll decide who to pay the lump sum to. We’ll take into account your circumstances when you dieand anyone you’ve said you want to receive the money.

Can I transfer my plan?

• You can transfer your plan to another pension plan at any time before you start taking a pension. We make notransfer charge. However, if you have invested in with profits, we may reduce or remove smoothing in certaincircumstances. Please read the enclosed With Profits Summary (WP82) for more information.

Can I change my mind?

• If you're transferring from a 'final salary' company scheme, you can't normally cancel the transfer or return tothe original scheme.

• For any other pension transfer you have a legal right to cancel the transfer if you change your mind. When weaccept your application we'll send you a Cancellation Notice that confirms the actual steps that must be takenin order to cancel the transfer. The Cancellation Notice confirms that you have a 30 day period to consider ifyou want to change your mind. This 30 day period starts from the date you receive the Acceptance Notice.During this period, if you decide you want to cancel, you should send your cancellation instruction, includingconfirmation that the original scheme will accept the funds back, to the address provided in the CancellationNotice. We'll then return the transfer payment to the original scheme. Please make sure that you include yourplan number in any correspondence with us.

• At the end of the 30 day period you will be bound by the terms and conditions of the plan and any moneyreceived by Standard Life will not be refundable.

• If you cancel during the 30 day period, you may get back less than you paid in. This is because we may make adeduction to reflect any market loss we have experienced during this period.

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How will I know how my plan is performing?

• We will send you a yearly statement to show how your plan is doing.

• You can check our website – www.standardlife.co.uk – for details of investment-linked fund prices.

• You can also get an up-to-date valuation at any time by calling our customer helpline.

How to contact us

• Remember, your adviser will normally be your first point of contact.

• If you have any questions or would like to make any changes to your plan, you can phone us, or send a fax or e-mail, or you can write to us. We may monitor calls to improve our service.

• Phone: 0845 60 60 012, Monday to Friday 8am - 5.30pm

Fax: 0131 245 3224

e-mail: individual_ppp@standardlife.com

(We can’t guarantee that we’ll receive any e-mail sent, or that it hasn’t been tampered with or interceptedduring transmission. You may prefer to contact us by phone or fax, or in writing.)

Write to us at:

The Standard Life Assurance Company1 Conference SquareEdinburghEH2 7RAUnited Kingdom

Other information

How to complain

• We have a leaflet that summarises our complaint handling procedures. If you’d like a copy, please ask us.

• If you ever need to complain, first write to us at the address on the previous page. If you aren’t satisfied withour response, you may be able to complain to:

The Financial Ombudsman ServiceSouth Quay Plaza183 Marsh WallLondonE14 9SR

Phone: 0845 080 1800Fax: 020 7964 1001

e-mail: enquiries@financial-ombudsman.org.ukWebsite: www.financial-ombudsman.org.uk

• Complaining to the Ombudsman won’t affect your legal rights.

KEY FEATURES

Standard Life has been assessed as having attained the standards under the Raising Standards Quality Mark Scheme.

The Standard Life Assurance Company* is a mutual company registered in Scotland (no SZ4) Head Office Standard Life House 30 Lothian RoadEdinburgh EH1 2DH Tel (0131) 225 2552 Standard Life may record and monitor telephone calls to help improve customer service.

The Standard Life group includes Standard Life Pension Funds Limited* SLTM Limited* Standard Life Investments (Mutual Funds) Limited*

*Authorised and regulated by the Financial Services Authority www.standardlife.co.uk

PAGE 8 OF 8SPP17b 905 2.5M ©2005 Standard Life

Terms and conditions

• This document gives a summary of Standard Life’s Stakeholder Pension Plan. It doesn’t include all thedefinitions, exclusions, terms and conditions, which are given in the Policy Provisions booklet (SPP62). For a copy of this booklet, please ask your financial adviser or contact us direct.

• We have the right to change some of the terms and conditions. We’ll write to you and explain if this happens.

Law

• The law of Scotland will decide any legal dispute.

• The English language will be used in all documents and future correspondence.

Compensation

• Where you receive advice from a qualified financial adviser, they should recommend a product that is suitablefor you. You have a legal right to compensation if, at any time, it is shown that you have bought arecommended product that was not suitable for your needs at that time.

• The Financial Services Compensation Scheme has been set up to deal with compensation if firms are unable, orlikely to be unable, to meet claims against them. For more information please contact us on 0845 60 60 012.

• The amount of compensation available from the Financial Services Compensation Scheme (FSCS) depends onthe type of business and the circumstances of the claim.

• Most types of investment business are covered for 100% of the first £30,000 and 90% of the next £20,000, sothe maximum compensation is £48,000. Further information is available from the FSCS.

About Standard Life

• The Standard Life Assurance Company's ("Standard Life's") product range includes life assurance, pensions andinvestments.

• Standard Life is on the Financial Services Authority Register. The registration number is 110464.

• Standard Life is a mutual company. However, on 31 March 2004 it was announced that the Standard Life Boardhad concluded that, in principle, proceeding towards a demutualisation of the Company was in the bestinterests of the Company and its policyholders. The current timetable envisaged is that a proposal will be put tomembers by the 2006 Annual General Meeting for implementation as soon as practicable thereafter.

KEY FEATURES

This addendum contains important information and formspart of the Key Features Document.

'About Standard Life' - Further Information

The ‘About Standard Life’ section of this Key Features Document tells you about anannouncement made on 31 March 2004. This said that the Board of Standard Lifehad concluded that, in principle, proceeding towards a demutualisation of theCompany was in the best interests of the Company and its policyholders. Therehas now been a further announcement, as follows:

On 17 October 2005 the Standard Life Board confirmed that it intends torecommend to members that the Company should demutualise and list on theLondon Stock Exchange, subject to satisfactory completion of all legal, regulatoryand other processes. The Board continues to believe that demutualisation andflotation is the best way forward and in the best interests of the Company, itsmembers and customers. It is expected that a proposal will be put to membersahead of a Special General Meeting in May or June 2006 for implementation assoon as practicable thereafter.

References to 'With Profits Summary' and 'With Profits Guide'

We enclose a booklet called ‘Understanding With Profits’. This booklet gives youimportant information about how Standard Life with profits investments work forthis type of plan. It replaces our ‘With Profits Summary’ and, from 31 December2005, our ‘With Profits Guide’. Any references in Key Features to ‘With ProfitsSummary’ or ‘With Profits Guide’ should be taken as references to ‘UnderstandingWith Profits’.

ADDENDUM TO KEY FEATURES

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The Standard Life Assurance Company* is a mutual company registered in Scotland (no SZ4)Head Office Standard Life House 30 Lothian Road Edinburgh EH1 2DH Tel (0131) 225 2552

Standard Life may record and monitor telephone calls to help improve customer service.

The Standard Life group includes Standard Life Pension Funds Limited*SLTM Limited* Standard Life Investments (Mutual Funds) Limited*

*Authorised and regulated by the Financial Services Authority www.standardlife.co.uk

GEN400 1205 1M ©2005 Standard Life

Understanding With Profits

This booklet gives you important information about how yourStandard Life Stakeholder with profits investment works.

We hope you find this booklet useful. Please keep it in a safe placein case you want to refer to it later.

31 DECEMBER 2005

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We aim to treat all planholders fairly. Your with profits fair payouttakes account of the premiums you pay us, the returns we get onthe assets we invest in, our deductions, and any discretionaryadjustments (up or down) that we make. The amount of your fairpayout may also depend on whether you stay in with profits to theretirement date set at the start of your plan.

We use our discretion for the benefit of our current and future withprofits planholders.

We invest in a wide range of assets, including equities (companyshares), property and bonds (loans to governments or companies).These types of assets can rise or fall in value. When we set fairpayouts we may smooth out some of the effects of short-termchanges in asset values. We may hold a different mixes of assets toback different classes of with profits plan.

1. Introduction 4

What are Principles and Practices of financial management?

2. What is a with profits investment? 5

What is a Stakeholder plan?

What are the bonuses for Stakeholder plans?

What are your guarantees?

What happens when you retire?

What happens if you stop paying premiums?

What happens if you leave with profits?

3. How do we set fair payouts? 6

What is an asset share?

What is smoothing?

4. What expenses do we incur? 7

5. How we invest the money backing with profits plans 7

How we decide the asset mix

How we manage the risks associated with investment

6. How we manage business risk 9

7. What is the inherited estate and how do we use it? 10

8. How we manage new business 11

9. If you need to contact us 11

Contents

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1. Introduction

This booklet tells you how we manage Stakeholder with profits business only.Other types of with profits plans that Standard Life operates in the UK are coveredin separate Understanding With Profits booklets.

We set out in more detail how we manage all our UK with profits business in aseparate publication called Principles and Practices of Financial Management for UKWith Profits Business (PPFM). This booklet is a summary of the main points from ourPPFM relevant to your plan. If you require a fuller, more technical description ofhow we manage our UK with profits business you should refer to our PPFM.

This Understanding With Profits booklet is intended only to give a high-level andsimplified description of how we manage our with profits business. It does not inany way:

• vary the existing terms and conditions of your plan;

• create any new or additional obligations; or

• restrict the way we manage our with profits business.

Your plan documents define the terms and conditions that apply to your plan andour PPFM sets out in more detail how we manage our UK with profits business.

Our website www.standardlife.co.uk will always have the most up-to-date versionof all Understanding With Profits booklets and of our PPFM. You can also getcopies by contacting us on 0845 60 60 100.

What are Principles and Practices of financial management?

We manage our with profits business according to a set of Principles andassociated Practices that are set out in our PPFM. Principles are high-levelstatements of the standards we apply. Practices are more detailed statements ofour current approach to managing with profits business.

We don’t expect to change our Principles very often. We will tell you at least threemonths in advance of any changes to our Principles. However, Practices changemore often, for example to respond to changes in the business or economicenvironment, or to protect the interests of with profits planholders.

If we make any changes to our PPFM that materially change this booklet, we willsend you a new booklet no later than the next time we send you a yearlystatement. We will also send you a booklet if we propose to change any of thePrinciples we apply in managing our with profits business. If members accept ourproposal to demutualise, a new PPFM will be published to reflect the newcompany structure after demutualisation. We would then send you a newUnderstanding With Profits booklet no later than the next time we send you ayearly statement after demutualisation.

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2. What is a with profits investment?

Your with profits investment is the part of your plan (and it could be the whole ofyour plan) for which we provide a share in the performance of a relevant withprofits fund. The relevant with profits fund is the mix of assets that we hold to backthe Stakeholder With Profits Fund. In addition some smoothing may apply. We givemore detail about smoothing and which assets we invest in later in this booklet.

What is a Stakeholder plan?A Stakeholder plan is a type of pension plan for which the Government setsmaximum charges.

We hold the relevant fund separately from our other investments and can only useit for Stakeholder with profits investors.

We allocate a number of units to your plan for each premium you pay. The withprofits units allocated represent your with profits investment. The value of yourunits reflects, amongst other things, investment performance and any smoothing –please see section 3 How do we set fair payouts?.

The value of your units may go down as well as up.

What are the bonuses for Stakeholder plans?

We do not pay regular or final bonuses on Stakeholder plans. The investmentperformance is reflected in the value of your units. However, we may credit yourplan with bonus units to return some of our charges to you. We may do this ifyour Stakeholder with profits investment is relatively large, which makes itproportionately cheaper for us to run. We may also reduce the charges on theStakeholder With Profits Fund to provide a share in the profits of the Standard Lifegroup – please see section 6 How we manage business risk.

We have discretion over the crediting of bonus units and reductions in charges.

What are your guarantees?

We do not provide any investment performance guarantee. The value of your unitsmay go down as well as up.

We guarantee that we will not charge you more than the amount allowed underStakeholder regulations.

What happens when you retire?

You will receive a fair payout – please see section 3 How do we set fair payouts?.Your fair payout is your unit value.

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What happens if you stop paying premiums?

If you stop paying premiums, there will be fewer units allocated at your retirement datethan if you had paid premiums throughout the term of your plan.

The value of your units, in respect of premiums paid, is unaffected if you stoppaying premiums.

What happens if you leave with profits?

You will receive a fair payout – please see section 3 How do we set fair payouts?.Your fair payout is your unit value.

3. How do we set fair payouts?

We explained earlier that you will receive a fair payout when your with profitsinvestment ends. We use asset shares as a tool to help set fair payouts. The assetshare represents the underlying value of the plan; the fair payout may be more orless than this. We describe below what an asset share is and how we may makefurther adjustments before setting fair payouts.

Your fair payout is the asset share, with any further adjustments, for your plan. Thisis directly reflected in your unit value. Your fair payout may depend on why yourwith profits investment is ending.

What is an asset share?

Briefly, the asset share of a with profits policy is the accumulation at the relevantreturns of the premiums paid, less the deductions we make. The relevant returnsare the investment returns on the assets that we hold to back Stakeholder withprofits plans, adjusted for the gains and losses due to smoothing payouts.

We may hold different mixes of asset for different classes of policy. Asset value, andso asset shares, may go down as well as up.

The deductions we make are normally for such things as our expenses and acontribution to Standard Life’s capital. These deductions correspond to chargesunder Stakeholder plans not invested in with profits.

If any amounts are withdrawn from the with profits policy, the asset share is reduced.

We may adjust the deductions, down or up, to provide a share in the financialperformance of the Standard Life group. We have discretion over the size of anyadjustments, however, the deductions that we make are subject to the maximumallowable under Stakeholder regulations.

Before we set fair payouts, we may make further discretionary adjustments:

• up or down for any smoothing – please see What is smoothing? below;

• up for any share in the profits of the Standard Life group; and

• up for any other distribution of excess capital forming part of the inherited estate.

Any adjustments we may make, whether up or down, may differ according to whythe with profits investment is ending. For example we may concentrate oursmoothing on retirements at the selected pension age.

We tell you more about the assets we hold to back with profits plans, sharing inthe financial performance of the Standard Life group and the use of the inheritedestate in sections 5, 6 and 7 respectively.

What is smoothing?

We hold a wide range of assets to back with profits plans. The return on these assetswill vary over time. One year the assets could go up in value, but the next theycould go down. We may even out some of the fluctuations in investment returns andreduce the immediate impact of short-term changes in asset values on payoutsunder our with profits plans. Smoothing is the name we give this process. We aim tosmooth for payouts on retirement at the selected pension age and we may smoothfor other types of payout.

We aim to operate smoothing to be neutral over time in its effect. We aim to makepayouts between 80% and 125% of asset share.

We may reduce the amount of smoothing or apply no smoothing at all. An exampleof when we may do this is if there has been a rapid fall in the value of assets and weexpect there to be a significant amount of money leaving with profits.

4. What expenses do we incur?

Like any other business Standard Life incurs expenses. These include the salaries ofour staff, the cost of maintaining our head office and branches, investment costs,any commission paid to intermediaries and any other ongoing costs. ForStakeholder plans we recover a fair share of these expenses when determining fairpayouts. Any balance of expenses that is not recovered in this way is met by theinherited estate – please see section 7 What is the inherited estate and how do weuse it?.

5. How we invest the money backing with profits plans

We invest in a mix of assets including equities (company shares), property, bonds(which are loans to governments or companies) and cash deposits. Equity andproperty assets generally have more variable values, but over the longer term weexpect them to provide higher returns. Bonds and cash deposits generally have morestable values, but over the longer term we expect them to provide lower returns.

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We may also invest in derivatives – such as investments that provide rights orobligations to buy or sell assets at a particular price and time – as an efficient wayof managing our with profits business.

We hold some assets that we would not normally sell. These include subsidiarycompanies, such as Standard Life Bank Limited, and properties that we own andoccupy. These assets usually form part of our inherited estate (please see section 7What is the inherited estate and how do we use it?), and don’t normally back withprofits plans.

How we decide the asset mix

We regularly review the asset mix that backs each class of with profits business. Weseek to generate competitive investment returns. The asset mix may not be thesame for all classes of with profits plan.

We decide what asset mix to hold by considering the extent of guarantees foreach class of with profits plan, and the appropriate balance between risk andexpected return. However, we generally expect lower-risk assets to give lowerreturns over the longer term.

Our main restriction on investment strategy is maintaining the Company’s financialstrength at a level the Board decides is appropriate whilst meeting our obligationsto planholders. The investment return credited to a particular class of with profitsplan will reflect the investment return on the mix of assets that backs that class ofbusiness.

How we manage the risks associated with investment

Certain risks are associated with investment, such as companies performing poorlyand reducing dividends or borrowers not making promised interest and capitalrepayments, or our having to sell assets to meet payouts when prices aredepressed. We aim to control our exposure to investment risks by investing inassets of sufficient quality and variety. For example we set limits on the amount weinvest in any one asset, in assets issued by any one company, and in assets that arenot traded on a recognised stock or bond market (and so may be difficult to sell).

There may be times when we need to reduce significantly the proportion of assetsinvested in higher-risk assets such as equities and property, for example where ourfinancial strength is reduced following a sudden or sustained fall in asset values.

We publish quarterly information on the asset mix for different classes of withprofits business on our website. Alternatively please contact us on 0845 60 60 100for a copy of this information.

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6. How we manage business risk

Running our business inevitably involves some risks. The largest risk is that theinvestment return on with profits assets is not enough to meet guaranteedminimum payouts for plans that have investment performance guarantees and tomaintain our financial strength. We manage this risk by varying the mix of assetsthat backs with profits plans – please see section 5 How we invest the moneybacking with profits plans.

We also manage this risk through the deductions we make from asset shares (forplans which have investment performance guarantees) for the cost of guarantees.We normally review these deductions once a year, but we may do so morefrequently. We will increase these deductions if our assessment of the cost ofguarantees increases significantly. This assessment will vary because of, forexample, changes in:

• asset values;

• asset mixes; and

• regular bonus.

Other risks include the costs of providing life cover or sickness benefits beinghigher than we expected, and expenses being higher than we expected. We maymanage these risks through underwriting (for example asking health questions onproposal forms) and reinsurance (passing part of the risk to another insurancecompany), and through budgetary controls.

Our Board carefully considers the significant risks associated with any particularbusiness activity before we undertake it. We continue to take on additionalbusiness risks where this is likely to provide long-term returns for the benefit ofcurrent and future planholders; for example by writing new with profits and otherbusiness. We do not currently apply any general limit on the amount of newbusiness or other types of business risk we accept.

Capital is needed to support any business activity. We decide whether to undertakea business activity by comparing:

• the expected profitability of the activity; with

• the expected benefits to our with profits planholders of other uses of that capital.

Standard Life is currently a mutual company with no shareholders. For so long as itremains so, our with profits planholders may share in the financial performance ofthe Standard Life group including profits and losses arising from business risks. This isin addition to the investment return on the assets backing with profits plans. Thesebusiness risks include writing non-with profits business, investing in subsidiaries, anddifferences between our actual expenses and the expenses we charge to plans. Whendetermining payouts to planholders any adjustment for profits and losses arisingfrom business risks is wholly at the Board’s discretion. This would reflect, forexample, the extent to which the plans have supported the risks taken.

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On 17 October 2005 the Standard Life Board confirmed that it intends torecommend to members that the Company should demutualise and list on theLondon Stock Exchange, subject to satisfactory completion of all legal, regulatoryand other processes. The Board continues to believe that demutualisation andflotation is the best way forward and in the best interests of the Company, itsmembers and customers. It is expected that a proposal will be put to membersahead of a Special General Meeting in May or June 2006 for implementation assoon as practicable thereafter.

7. What is the inherited estate and how do we use it?

Our inherited estate is a pool of assets that provides working capital for our withprofits business. We may use this pool of assets in any way that we feel is in thebest long-term interests of our current and future with profits planholders. Forexample we may use our inherited estate to:

• support the development and growth of the Standard Life group, for instancethe sale of new business, and investment in subsidiaries, such as Standard LifeBank Limited;

• meet expenses that are not recovered when determining fair payouts;

• allow greater choice over the proportion of higher-risk but potentially higher-yielding investments, such as equities and properties, backing withprofits plans; and

• meet some of any shortfall of the value of the assets backing with profits plansfrom their guaranteed benefits.

The size and uses of our inherited estate are regularly monitored by the Board. Ifour inherited estate becomes too small we may need to, for example, increase thedeductions we make from asset shares or reduce the proportion of equities andproperties backing with profits plans. If our inherited estate is ever judged to begreater than required then we may, for example, use part of it to increase payoutvalues or increase the proportion of equities and properties backing with profitsplans. The Board would balance the interests of existing and potential future withprofits planholders when reviewing all the options open to us.

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8. How we manage new business

We aim to grow our business profitably by selling new with profits and other plansin a controlled way that maintains our financial strength at an appropriate level.This will include expansion into new areas and markets. We monitor our newbusiness to ensure that overall the mix of business remains well balanced betweenwith profits and other plans.

We have no plans to stop selling new with profits plans. If we do ever stop sellingthem, we will notify you and will write to explain how our with profits business willthen be managed. Any subsequent distribution of the inherited estate will be designedto treat planholders fairly and will be approved by the Board, in accordance withStandard Life’s Regulations.

9. If you need to contact us

You can contact us through our website www.standardlife.co.uk

Or by telephone on 0845 60 60 100.

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Standard LifeStandard Life House

30 Lothian Road Edinburgh EH1 2DHTelephone (0131) 225 2552

Standard Life may record and monitor telephone calls to help improve customer service.

www.standardlife.co.uk

The Standard Life Assurance Company* is a mutual company registered in Scotland (no SZ4)Head Office Standard Life House 30 Lothian Road Edinburgh EH1 2DH

The Standard Life group includes Standard Life Pension Funds Limited*SLTM Limited* Standard Life Investments (Mutual Funds) Limited*

*Authorised and regulated by the Financial Services Authority