With-profits policies are a type of insurance policy used by many people to save for a pension.

They were once seen as an ultra-safe way of building up a pension pot, but they have lost some of their appeal in the face of stock market falls, and a subsequent spate of bonus cuts.

How do they work?

Contributions into the traditional with-profits pension are invested in the provider's with-profits fund.

Extra profit made on the stock market in good years is paid back into the fund during poor years for the market.

The idea is that the payment of such bonuses "smoothes" the ups and downs of stock market investments and thus protects the value of the pension investment.

However, against the backdrop of a stock market that has fallen by nearly half since its peak back in 2000, the smoothing effect of bonus payments has in many cases not proved sufficient to protect all of the investors money.

In fact, many with-profit providers have cut their bonus pay-outs and raised penalties levied on investors looking to exit the fund.

As a result, some have called into question the whole with-profits concept.

What are unitised with-profits pensions?

This differs from a traditional with-profits pension in that the investor's money buys units - in effect shares - in a fund run by the pension provider.

The value of the units will increase each year by an amount that is dependent on the investment performance of the investments within the with-profits fund.

On maturity a terminal bonus may also be payable.

Where can I get further information?