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How Smoothing Works 
If you invest money in the Income Fund, Balanced Fund, or Shari’ah Fund, you will be credited exactly with the investment return earned on the underlying assets (after deducting the investment manager’s fee.)

The money you invest in the Smoothed Bonus Fund will be credited with the bonus declared by MMI Life (after deducting the investment manager’s fee). MMI declares a bonus each month.

In declaring this bonus the Insurer smoothes the investment returns earned on the underlying assets over time (usually between 5 and 10 years). This means that part of the investment return arising from the very good years will be held back and then released in the years when performance is weaker.

For example, if the return on the underlying assets in the portfolio is 20% per annum, the Insurer may only declare a bonus rate of 12% per annum. The remaining 8% return is earmarked in a "bonus smoothing account". In the following year, when investment returns are, say, 0% per annum or negative, the Insurer may declare a bonus rate of 6% per annum or zero, thus drawing down on the "bonus smoothing account".

It is important to understand that over the long term, the bonuses declared by the Insurer will reflect the return earned on the underlying assets (after allowing for the cost of the guarantee (see below), shareholder charges and investment fees). It is this feature, together with the asset allocation, that gives you some protection against inflation risk.

Smoothed Bonus Fund investments made under the Life Stage Model

There are important differences to the operation of the Smoothed Bonus Fund for members whose UCTRF investments are partly invested in the Smoothed Bonus Fund under the Life Stage model (since 1 April 2015). A detailed explanation of these differences will be provided on request. The operation of the Smoothed Bonus Fund for Life Stage members will be similar to that described above, and it is unlikely that members will be aware of the difference.

What happens when I exit the Fund?

When you exit the Fund (i.e. receive a benefit) you will receive the full balance in your vesting and non-vesting accounts. Effectively, this means that your non-vested account "vests" when you leave the Fund.