Prudential, one of the UK’s largest insurers, and a major player in the pension annuity market, including with profits annuities, is to lower the accumulating value of its various with-profits policies by between 6-10% due to “exceptional market conditions”.
Prudential announced the reduction on the 24 February after revealing that the underlying fund had fallen by 19.7% in value, before tax. Although it did compare this to an almost 30% fall in the FTSE All-Share index during last year.
The insurer stated that it had added around £2.8bn to its with-profits policy values to help smooth the fund. It wil pay annual bonuses worth around £1.3bn with rates set at 3% for most with-profits bonds and personal pension plans and 2% for Prudential sold pension annuity customers. It will also pay out around £1.5bn in final bonuses.
David Belsham, the chief actuary, stated that although investment markets had performed very poorly last year, their policyholders have been protected somewhat from the full impact of the market falls and policyholders will typically see a reduction of between 6-10% in their accumulating with-profits policy values.
Example. A pension policyholder with a 20-year term paying £200 per month will see their policy claim value fall 9.3%, from £103,581 last year to £96,238 this year.
And someone with a 25-year Prudential endowment plan paying £50 a month will have seen their policy value decrease by 6.1% £37,738 this year, down from £39,569 last year.
It is worth reminding ourselves that with-profits products are meant as medium to long-term investments and Prudential’s with-profits customers have received strong annualised returns over time.
But what if you are in the market for a with profits annuity? Are they a good risk at the moment? Are they likely to give an improving income over time? Not at these rates they won’t.
So, if you are looking at with profits for your pension annuity get some annuity quotes, find the best annuity rates, but beware of anyone over-egging the potential of bonus rates.
