Prudential Annuities is launching its Flexible Lifetime Annuity in which IFA clients can control the...
Prudential Annuities is launching its Flexible Lifetime Annuity in which IFA clients can control their income and investments within an annuity.
The product, which the group is calling a new generation annuity, invests in equities, and scheme members can convert the value of their fund to a conventional fixed annuity at any time.
It is the main option under the group's new investment umbrella called the Flexible Retirement Income Account, which is made up of the annuity product and a new income draw down facility designed to work with the annuity provision for those with larger funds.
The product, available from 9 April, has a minimum purchasing price of initial £100,000, including tax-free cash, and additional of £25,000.
Prudential Annuities calculates a maximum income, which it projects throughout the lifetime of the annuitant. Depending on individual circumstances, the starting incomes could be higher than the equivalent traditional annuity, according to Tom Boardman, managing director at Prudential Annuities.
To suit varying circumstances the annuitant can choose any level of income between 100% and 50% of maximum income calculated by the group. The limits are fixed at outset and recalculated every three years.
Also every three years, Prudential will adjust the maximum income in line with actual and projected investment performance and longevity experience.
Buyers have a choice of three investment strategies including cautious, standard or adventurous or they can select a self-management option. The fund range available to those choosing this route includes three M&G funds, Prudential Unitised with profits and 10 funds managed by Perpetual, Newton, Phillips and Drew, Schroder and Merrill Lynch.
Switching between funds is permitted at any time and up to six free switches are offered each year.
There is no bid/offer spread on the product and there is an initial charge of 3% while the investment funds feature annual management charges ranging from 0.8% to 1.225%, depending on the fund. Commission of 2% initial is available on the product along with trail of 0.25%
The product also contains what the group call Lifetime Bonuses, which is essentially the mortality cross subsidy available in most annuities in which the money remaining in individuals' annuity funds upon death is split between all surviving annuity holders. The difference with the Flexible plan, according to Trevor Mitchell, market manager at Prudential Annuities, is that this is made obvious to members, who are to be allocated units each month, thereby guaranteeing an income for life.
He said: "We want to make it more visible so people can see what is within the product. Each year we will send them a statement showing the value of the units, income drawn, how much lifetime bonus has added, the value of the investment growth and the value of the funds so they can see exactly what is going on."
Paul Bruns and Elaine Parkes
3,000 left to transfer
Record numbers of people aged 90 plus
From 3 to 10 October