Group cutting Terminal bonuses and raising its annual management charge
Investors in Prudential's Prudence Bond product range will see their overall yields drop by up to 1% as a result of cuts to terminal bonus rates and increases in annual management charges.
From 1 October, overall yields in the Optimum Return fund will fall from 6% to 5% for investors choosing the initial charge option and from 5.7% to 4.7% for the zero initial charge option.
For the Optimum Bonus fund, overall yields will fall from 5.55% to 5.3% for the initial charge option and from 5.25% to 5% for the zero initial charge option.
Overall yields on the International Prudence Bonds have also been cut. With effect from 5 September, terminal bonuses on the group's sterling and euro with-profits funds have been reduced by 0.7%, bringing the sterling fund yield down to 6.1% and the euro fund to 5.5%.
The reductions are being effected in two stages. The first, taken from 5 September, saw terminal bonuses cut on four of the bonds in the Prudence Bond range. The second takes effect from 1 October and will see annual charges hiked by 0.25% for new business and top-ups on all but the International bonds.
The annual management charge (AMC) rises to 1.25% on initial charge options and 1.55% on zero initial charge options. Cutting terminal bonus rates and upping the AMC has the effect of reducing the overall yield on the bonds.
The proportion of capital that can be withdrawn from a bond without incurring charges has also been reduced from 5 September, from 7.5% to 5%.
For all but the International bonds, allocation rates will decrease by 2% and death benefits fall to 100.1% of surrender value for investors aged 74 or above at entry from 1 October.
Similarly, the minimum amount needed to set up a Prudence Bond has increased from £6,000 to £10,000, with minimum top-up investments increased from £1,000 to £5,000.
Prudential cited 'substantial declines in world stock markets' as the reason for the changes. Mark Wood, chief executive of Prudential UK, said: 'This is the right course of action to take at this time to protect our with-profits investors.
'In just over two and a half years, the UK stock market has fallen by 40%, yet the strength of our with-profits fund has shielded our investors from the full impact of this decline. This is a prudent move to protect the strong financial position of the fund and the interests of our ongoing customers.'
Industry opinion on the news was in broad agreement that Prudential is still in good financial health and the cuts are simply prudent management.
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Some 2,000 consumers affected