With-profits investments may finally have turned the corner and started making viable returns again, as this morning's bonus announcement from Prudential showed stronger performance in 2003.
At least £1.9bn was added to the value of the Pru with-profits fund in 2003, says the life insurer, benefiting 4.5m policyholders of with-profits pension, endowments and bond policyholders, thanks to a 16.5% return last year.
As a result of a 27% investment return between January 1999 and December 2003, it is only Prudential’s with-profits personal pensions will this time see a cut in the annual bonus rate, from 3.5% to 3.25% regular bonus.
This is significantly better than some companies have offered their with-profits policyholders in recent months, argues a spokesman for Prudential, as the firm’s prudent management of payouts over recent years has helped the life group to limit losses during the turbulent years.
Policyholders of the Prudence Bond will this year receive the same payout as last year and gain a 3.25% bonus thanks to improved market trading of with profits assets, and with-profits endowment policyholders will see the same payouts of either 1% for sum assured plans and 2% on existing policies, while annuity policy payouts have also improved.
In addition to the maintained bonuses, the Pru has also increased the amount of cash they can remove from their policy, without hitting a Market Value Reduction on the policy, to £25,000 from the previous limit of £10,000 – but only providing they have held the policy for at least five years.
Darragh Leeson, head of intermediary public relations at Prudential UK, says the firm’s with-profits funds are also less likely to be affected by FSA changes to realistic reporting requirements – as the firm already operates under such conditions – so long-term investment returns are anticipated to be 7.5% gross pa, albeit the way information is presented will change.
The with-profits fund’s solvency ratio has already increased from 8.4% to 10.5%, as result of a higher equity backing ratio.
At the same time as Prudential reveals improved performance of its with-profits funds, other Pru figures however state the firm's sales are down 12% on last year.IFAonline
£300bn of liabilities
View from the front row
Transfer from occupational scheme
Appointed by FCA and PSR boards