More about the impact of increased guarantee costs
We understand that guarantees, at an appropriate price, are an important product feature for many customers and we continue to be committed to providing them.
We aim to ensure that customers buying a guarantee are paying a fair price. Recently, as the market price of guarantees has increased due in part to low interest rates and market volatility, this has impacted on the cost of providing guarantees and we have been required to review what we charge.
Many of the guarantees we provide are underwritten by the financial strength of the Prudential Assurance Company (PAC) With-Profits Fund. This has enabled us to continue to offer competitive guarantees, when many others providers are withdrawing this facility.
This is a prudent and responsible approach to setting our charges, and it ensures that all customers are treated fairly. This review has led to the need to announce the following changes.
Increase in the guarantee cost for PruFund Protected Cautious
The increased cost of providing a fund with an investment guarantee has led us to the decision to apply an increase to the charge for the guarantee on the PruFund Protected Cautious Fund. The charge will increase by 0.15% to 0.90% per annum across these products:
- Onshore Bond - Flexible Investment Plan and Prudential Investment Plan (from 9 August 2010)
- Pension - Flexible Retirement Plan and Trustee Investment Plan (from 4 October 2010)
It’s important to note that this change will have no impact on existing investors in the fund - the charge at the time of original investment is fixed throughout the term of the guarantee period. These customers will continue to benefit from the security of their guarantee at the price they originally bought at.
Income Choice Annuity Re-price
Income Choice Annuity guarantees to pay an income for life, and also guarantees that a client's income will not fall below a certain level over the lifetime of the annuity. The cost of providing these guarantees continues to increase and as a result we are re-pricing Income Choice Annuity from 9 August 2010. Starting incomes will fall as a result by around 2.0%. This will come into effect for new business quotations from 9 August 2010.
Any quotations produced prior to 9 August will not be impacted by the change, providing the case is completed within the guarantee period of the quotation.
Again, this does not impact any existing customers who have taken out an Income Choice Annuity before 9 August 2010.
