Question: A UK proprietary life insurance company writes a stakeholder pension with investment options that include unit-linked funds and a smoothed unitized with profits (UWP) fund. For the UWP fund the asset share is calculated using the unsmoothed unit price, which is calculated in the same way as prices for the unit-linked funds. The customer benefits are expressed using the published smoothed unit price. There is no regular or terminal bonus, and the smoothed unit price can fall. Smoothing profits and losses are recycled back into the fund on a daily basis. ... I have some question about the "smoothing" here. 1. Why is smoothing cost higher when smoothing period is longer? 2. What is smoothing profit/loss? 3. How is the smoothing profit/loss recycled back into the fund? Does it involve changing size of the shadow fund? Is there need to buy/sell assets? 4. Can company still apply a MVR (on withdrawal) when there is smoothing? Sorry that these may be damp questions, although I am pretty confused when trying to understand the nature of this product. Many thanks!
