Fixed Income  

Pru to slash guarantees on with-profits and pensions

Prudential has cited changing market conditions in its decision to remove the market value reduction-free guarantee on regular withdrawals from its with-profits bonds and pension products.

Currently Prudential supplies investors in its Prudential Investment Plan, Prudential International Investment Bond, and International Prudence Bond as well as its Flexible Retirement Plan a guarantee that they will not be penalised for cashing in their policies early.

Without such a guarantee, investors could face a penalty if they cash in their policies prematurely and in a lower market than that in which they were purchased.

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From 11 November 2013, Prudential will no longer supply this guarantee to newcomers. Bonds in force before 11 November including future top-ups of them will not be affected by the change. Nor will any existing Flexible Retirement Plans.

However, for existing FRP customers who want to increase their contributions Prudential has to set up a new plan for the increased amount - meaning that from 11 November additional contributions from these customers -except for automatic indexation - will be impacted by the changes.

Prudential is keeping the guarantee of no MVR at selected retirement age for its FRP, and is also maintaining the guarantee on death for all products.

Prudential said in a statement: “Over recent years, market conditions have changed and the cost of providing guarantees has increased. Rather than passing the increased cost to all customers, we believe it is fairer to change some of the guarantees we offer on new business.”