SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For the month of February 2007
PRUDENTIAL PUBLIC LIMITED COMPANY
(Translation of registrant's name into English)
LAURENCE POUNTNEY HILL,
LONDON, EC4R 0HH, ENGLAND
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports
under cover Form 20-F or Form 40-F.
Form 20-F X Form 40-F
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes No X
If "Yes" is marked, indicate below the file number assigned to the registrant
in connection with Rule 12g3-2(b): 82-
Enclosures: With-Profits Announcement
Embargo: 07.00am Tuesday 20 February 2007
ANOTHER EXCELLENT YEAR FOR PRUDENTIAL'S
4.4 MILLION WITH-PROFITS CUSTOMERS
Overview:
- Prudential's 4.4m with-profits customers continue to reap the rewards of
investing over the long-term in the Prudential With-Profits Fund
("the Fund")
- Consistent and prudent investment management approach resulting in
strong returns in Prudential's Fund over many years
- Excellent returns that help customers plan for their retirement with
greater certainty:
- Prudential has increased year-on-year payouts by more than 10 per cent
across the majority of policies
- Annual bonus rates maintained in 2007
- With-profits payout values boosted by up to 17.5 per cent
- With-Profits Annuities income increased by up to 15 per cent for the
coming year
- All maturing Prudential endowments will meet repayment targets in 2007
and an estimated 96 per cent of Scottish Amicable endowments are
expected to do the same
- GBP2.5 billion added to policy values
Prudential's Investment Performance Excels in 2006:
- Prudential's Life Fund generates 12.4 per cent return in 2006. Investment
performance over 5 years of 63.8 per cent and over 10 years of 161.9 per
cent, out-performing the funds of our major competitors who have declared
to date in 2007
- Significantly better returns in 2006 from Prudential's Fund compared with
the average sector returns of: Balanced Managed Funds; Distribution Funds;
and Cautious Managed Funds
- Prudential's with-profits products have also significantly out-performed
against cash and building society accounts
- Prudential's investment management has provided "dazzling performance
over the past few years" (Source: Cazalet Consulting)
Gary Shaughnessy, Managing Director, Life and Pensions at Prudential, said: "By
prudently managing our With-Profits Fund, we have consistently delivered
substantially better returns than the vast majority of bank and building
society accounts while at the same time limiting the risk customers face when
investing directly in the stock market. Another year of strong returns means
that yet again, our policyholders are benefiting from investing with Prudential
over the long-term."
What has Prudential delivered for investors?
Prudential's 4.4 million with-profits policyholders are today looking at the
prospect of being more secure in their retirement as the company increases their
policy values by up to 17.5 per cent. This follows a very strong investment
return in Prudential's Life Fund in 2006 of 12.4 per cent (before tax and
charges). The majority of policyholders will see their policy values increase by
more than 10 per cent.
We believe Prudential's with-profits investments continue to provide solid
long-term growth prospects for investors through increased payouts for all
policies maturing in 2007 when compared with their value 12 months ago - further
evidence that holding long-term investments over their full term is sensible for
the vast majority of investors.
Policies in 2007 show increases compared with their position a year ago:
- 10 year Prudence Bond - With-Profits Bond - (GBP10,000 single premium)
up 10.9 per cent
- 15 year Personal Pension (GBP200 per month regular premiums)
up 11.4 per cent
- 20 year Personal Pension (GBP200 per month regular premiums)
up 11.8 per cent
- 25 year Prudential With-Profits Mortgage Endowment up 11.8 per cent
- 25 year Scottish Amicable With-Profits Mortgage Endowment up 12.7 per cent
Notes: Both mortgage endowment examples based on GBP50 p.m. regular premiums,
male aged 30 at start of contract
: All figures are after deduction of tax (where relevant) and charges.
As in previous years, Prudential continues to show the 12-month growth achieved
for individual policyholders, as this is a more relevant measure than showing
them a comparison with a policy that matured a year earlier.
Prudential's customers have benefited from the financial strength, diversity and
outstanding investment performance of its With-Profits Fund, compared with other
cautious investments as follows:
Prudence Bond's performance relative to alternative investment products
Investment Product Total Payout Annualised
Return
Prudential With-Profits Bond GBP17,772 5.9%
(10 year, GBP10,000 single premium)
Average building society account GBP12,015 1.9%
Average balanced managed unit trust GBP18,698 6.5%
Average balanced managed GBP16,593 5.2%
unit-linked life fund
Notes 5 and 8
Prudential's Personal Pension performance relative to alternative investment
products
Investment Product Total Payout Annualised return
Prudential With-Profits Individual Pension GBP119,401 8.4%
(20 year term, GBP200 per month regular
premiums)
Average building society account GBP67,066 3.2%
Average balanced managed unit trust GBP119,127 8.3%
Average balanced managed GBP114,352 8.0%
unit-linked pension fund
Note 5, 8 and 9
How does Prudential compare?
Prudential's with-profits investments continue to hold their own against the
alternatives available to investors and at a level of risk that is often
significantly lower than other actively managed multi-asset investments.
In 2006, Prudential's Fund return of 12.4 per cent represented a significant
out-performance over the average sector returns of: Balanced Managed Funds 9.1
per cent; Distribution Funds 5.9 per cent; Cautious Managed Funds 6.8 per cent;
and cash at 3 per cent. This performance demonstrates that investing in
with-profits with Prudential works.
Source: Financial Express average life fund sector fund performance and
Financial Express FINEX 90 day deposit performance, both between 31/12/2005-31/
12/2006
However, this year's announcement is not just about the results in 2006. Over 5
years, our Fund has outperformed the FTSE 100 and FTSE All-Share indices, as
well as the UK Average Cash and Fixed Interest Fund benchmarks. Take a look at
the facts:
Fund / Index Total return over 5 years
Prudential With-Profits Fund 63.8%
FTSE All Share (total return) 50.2%
FTSE 100 (total return) 41.1%
UK Average Life Fund 22.6%
UK Average Cash Fund 13.9%
Note 6
Similarly, the Fund has performed exceptionally well over a 10-year period
(161.9 per cent) when measured against the funds of our major competitors in the
UK who have declared bonuses so far this year and the FTSE 100 and FTSE
All-Share indices.
We believe our investment performance and the values we are adding to plans
stand out from the competition. For example, a typical payout for a 25-year
endowment maturing in 2007, on a male life (age 30 next birthday at outset,
non-smoker, paying GBP50 a month) would be worth:
- GBP49,492 if invested with Prudential
- GBP43,451 if invested with Norwich Union, and
- GBP38,054 in a Standard Life plan
Source: Prudential, Norwich Union and Standard Life 2007 Bonus Announcements
Gary Shaughnessy continued: "Our longstanding customers continue to enjoy the
benefits of investing with Prudential across different market conditions.
Consistency is important to them and our investment performance over five and 10
years has continually outperformed a number of market indices and the vast
majority of other with-profits funds.
"This demonstrates clearly that with-profits, by being invested in an actively
managed, well-run and financially strong fund, can produce good returns for the
cautious investor. Our customers have done exceptionally well, not only when
compared to investing in with-profits with other companies, but against
alternative multi-asset investments, and crucially, at a lower level of risk
than direct investments in the UK stock market."
When compared with values being paid by many other major providers this year,
Prudential customers are better off up to the tune of: GBP40,481 on 20-year
individual pension; GBP1,259 on the 10-year surrender value of a single premium
with-profits bond; and GBP11,438 on a maturing 25-year with-profits endowment.
Note 7
This strong performance is in a large part due to Prudential's skilled
investment management; its prudent stewardship of the Fund; the freedom, through
sustained financial strength, that allows it to invest in 'real' assets and in
turn review the asset mix to reflect its views on markets. This focus on
maintaining the financial health of the Fund is central to the rigorous
management process that Prudential applies to with-profits investing.
Ned Cazalet, Cazalet Consulting, and a leading industry commentator said: "The
Pru's WP Fund has turned in a dazzling performance over the past few years. On
the investment front, the Pru has got some big market calls right, and its
tactical asset allocation decisions have paid-off, big time, leading to massive
investment out-performance relative to its peers, with the knock-on effect
showing up in its market-bucking bonus payments - we score it 9 out of 10."
In July 2006 Prudential retained its top ranking in the WM Life Fund Survey. The
Prudential with-profits fund took the top spot, making it the best performing
fund in the WM UK Life Fund Universe. The WM Life Fund Survey is compiled on a
quarterly and annual basis by WM, the independent fund-performance service
provider. This ranking consolidates the superior position achieved in previous
years, with Prudential retaining its top spot over 10 years.
James Smith, of Investment Week, wrote: "Prudential is one of the few to win
plaudits for performance and major asset allocation calls on its multi-billion
with-profits portfolio. After all, how many fund management groups can claim a
demonstrable track record in asset allocation that incorporates correct calls on
the dotcom bubble and subsequent market recovery?"
(Source: Investment Week - 29/01/07)
-Ends-
Full details of Prudential's 2007 bonus announcement can be downloaded from:
- www.pru.co.uk/presscentre
- www.headlinemoney.co.uk.
Or contact the Prudential UK press office on:
Darragh Leeson Tel: 0207 150 2600 Mobile: 07801 856011
Steve Colton Tel: 0207 150 3136 Mobile: 07771 531525
Juliette Emblem Tel: 0207 150 2657 Mobile: 07802 486414
The information contained in Prudential UK's press releases is intended solely
for journalists and should not be used by consumers to make financial decisions.
Full consumer product information can be found at www.pru.co.uk
Forward-Looking Statements
This statement may contain certain "forward-looking statements" with respect to
certain of Prudential's plans and its current goals and expectations relating to
its future financial condition, performance, results, strategy and objectives.
Statements containing the words "believes", "intends", "expects", "plans", "
seeks" and "anticipates", and words of similar meaning, are forward-looking. By
their nature, all forward-looking statements involve risk and uncertainty
because they relate to future events and circumstances which are beyond
Prudential's control including among other things, UK domestic and global
economic and business conditions, market related risks such as fluctuations in
interest rates and exchange rates, and the performance of financial markets
generally; the policies and actions of regulatory authorities, the impact of
competition, inflation, and deflation; experience in particular with regard to
mortality and morbidity trends, lapse rates and policy renewal rates; the
timing, impact and other uncertainties of future acquisitions or combinations
within relevant industries; and the impact of changes in capital, solvency or
accounting standards, and tax and other legislation and regulations in the
jurisdictions in which Prudential and its affiliates operate. This may, for
example, result in changes to assumptions used for determining results of
operations or re-estimations of reserves for future policy benefits. As a
result, Prudential's actual future financial condition, performance and results
may differ materially from the plans, goals, and expectations set forth in
Prudential's forward-looking statements. Prudential undertakes no obligation to
update the forward-looking statements contained in this statement or any other
forward-looking statements it may make.
Contents
1. Investment Performance
2. What this means for customers
- Payout values for Prudence Bond, personal pensions and savings
endowments (Prudential and Scottish Amicable)
- Comparison of with-profits to alternative investments
3. With-Profits Annuities (WPA)
- Bonus rates for WPA
- How WPA work
4. Mortgage Endowments - Prudential and Scottish Amicable
- Payout values for mortgage endowments
- Red, amber and green status
5. How bonus rates are managed by Prudential
6. How you can get access to Prudential's with-profits performance
7. Annual and final bonus rates for 2007
- Annual and final bonus rates and how they are calculated
- Who isn't seeing an increase
- Unitised versus conventional policies
8. Notes to Editors
1. Investment performance
Fund performance
Prudential's Fund has once again achieved an excellent performance, with a total
return of 12.4 per cent (before tax and charges) in 2006. All investors will
directly benefit.
Over five years to 31 December 2006, it has achieved a total return of 63.8 per
cent, against 41.1 per cent for the FTSE 100 (total return) index and 50.2 per
cent for the FTSE All-Share (total return) index. Over 10 years, the fund has
returned 161.9 per cent against 102.7 per cent for the FTSE 100 (total return)
index and 114.0 per cent for the FTSE All-Share (total return) index.
(All figures to 31 December 2006, before tax, charges and the effects of
smoothing. Source: Prudential, Lipper Hindsight).
How the fund is run and the role of Prudential's Portfolio Management Group
Prudential has an exceptionally strong investment capability, with total funds
under management of GBP237.5 billion (as at 30 June 2006) and more than 300
investment professionals around the world.
Within the With-Profits Fund, which, including the Scottish Amicable
with-profits fund, accounts for GBP85billion of the total funds invested - its
geographical and sector portfolios are run by different managers. This resource
is co-ordinated by the Portfolio Management Group (PMG), which acts as 'manager
of managers' for the Prudential Group and is responsible for asset allocation
and risk management.
The PMG team is made up of economists, investment strategists and analysts who
operate separately from the conventional asset managers of Prudential. They
come from a range of backgrounds and, between them, have extensive investment
knowledge and experience.
Asset allocation
The fund's asset allocation is actively managed and has played a major part in
its successful long-term performance.
With-profits contracts are long-term contracts with relatively low guaranteed
amounts, and this, combined with the strong financial position of the fund,
enables Prudential to invest primarily in equities and property.
At the end of 2006 the equity backing ratio (equity plus property plus
alternative assets) was 70.8 per cent which is considered to be a 'slightly
higher than neutral' weighting. We believe broadly that equities offer good
value, with a number of markets in Asia and Europe looking especially
attractive. UK commercial property generally looks expensive though we have
found opportunities in overseas markets in the US, Europe and Asia. The exposure
to alternative assets such as hedge funds and infrastructure is expected to
increase slowly over time as opportunities arise.
In bonds, the fund has moved over the year to generate more diversification by
investing further in the US, and has moved to increase the average credit rating
on the fund (i.e. has become more defensively positioned).
The fund remains extremely well-diversified geographically, by asset type and
within the underlying stock portfolios, which we believe is an attractive
feature of Prudential's with-profits proposition.
It helps reduce risk or expected volatility by insulating the total fund from
potential weakness in any particular market or stock. The active management of
the asset mix in recent years has had a substantial beneficial impact on
investment returns.
The broad asset mix will continue to be reviewed as the economic environment and
market valuations change.
Current Asset Mix
31/12/06 31/12/05 31/12/04 31/12/03 31/12/02
% % % % %
Equity shares
- UK shares 36 40 33 33 32
- Non-UK shares 17 19 15 15 13
Property 15 15 18 17 18
Alternative investments 3 2 2 2 2
Fixed interest 25 21 29 31 33
Cash 4 3 3 2 2
Total 100 100 100 100 100
Scottish Amicable's with-profits fund
Prudential's asset management team is also responsible for the running of the
closed Scottish Amicable with-profits fund, which accounts for GBP13.7 billion
of the GBP85 billion under management. Since the takeover of Scottish Amicable
by Prudential in 1997 the fund has benefited from the same investment process as
the Prudential fund. The Scottish Amicable fund delivered an investment return
of 11.8 per cent in 2006. Over five years the fund has delivered 62.9 per cent.
Prudential's Solvency remains strong
The long-term fund remains well-capitalised and is one of the strongest in the
UK with a financial strength rating of AA+ by Standard & Poor's, Aa1 by Moody's
and AA+ by Fitch Ratings.
2. What this means for customers
The exceptionally strong investment performance means we are able to deliver
excellent year-on-year increases for the vast majority of policyholders.
- Payout values increased by up to 17.5 per cent on pensions
- Payout values increased by up to 15 per cent on with-profit annuities
- Payout values increased by up to 11 per cent on Prudence Bond
How the investment performance relates to policyholders
The strong performance of the fund means that Prudential is able to increase
policy values for the majority of with-profits policies maturing in 2007, by
over 10 per cent.
In translating the performance of the fund into benefits for policyholders,
various allowances are made. First, for plans other than pensions, there is a
deduction for tax and for all plans there are charges to take into account. The
return on the fund, net of tax, over 2006 was 10.9 per cent.
There is then an allowance for smoothing. Some of the investment return in good
years is held back so that we can boost bonus rates when markets have not been
so good - producing a generally smoother pattern of returns to policyholders,
year to year, than the actual performance of the fund.
Finally, the investment return is apportioned between annual bonuses and final
bonuses. In most cases, we aim to keep a substantial proportion of payout values
in non-guaranteed form - that is, payable as final bonus. This helps to maintain
flexibility for our investment strategy and to protect the ongoing solvency of
the fund.
Annual bonuses are based on our view of the expected long-term investment
return. Final bonus rates are more closely linked to actual past performance,
taking into account smoothing, as described above.
What is generally important to customers is the total value added to their
policy. The figures in the following sections reflect this, showing the value of
policies in 2007 compared with the value in 2006.
Note: In recent years all of our policies have been re-branded 'Prudential' and
are now sold under one brand. Historically, however, we operated two brands:
Prudential and Scottish Amicable. For the purposes of this announcement we have
maintained the split so it is clear which example relates to which policies.
Where we refer to a building society account it should be remembered that money
in these accounts is secure and readily accessible and would generally return
all the investor's capital, whereas money in our investment products and
pensions may return less than has been invested and the value of these products
will fluctuate.
Payout values for Prudence Bond, personal pensions and savings endowments
PRUDENTIAL:
Typical increase in Prudence Bond policy values
Prudence Bond Year-on-Year Increase in a Annual Increases
in Cash-in Values
With-Profits Bond Bond's Value #
Policy Duration Single Premium Bond Value Bond Value Increase in
Value over 2006
In 2007 (2006) 2007 2006 %
5 years GBP10,000 GBP14,152 GBP12,703 GBP1,449 11.4%
(4 years)
7 years GBP10,000 GBP14,097 GBP12,987 GBP1,110 8.5%
(6 years)
10 years GBP10,000 GBP17,772 GBP16,031 GBP1,741 10.9%
(9 years)
# No MVR is payable in this case
Notes 5 and 8
Prudence Bond's performance relative to alternative investment products
Investment Product Total Payout Annualised
Return
Prudential With-Profits Bond GBP17,772 5.9%
(10 year, GBP10,000 single premium)
Average building society account GBP12,015 1.9%
Average balanced managed unit trust GBP18,698 6.5%
Average balanced managed GBP16,593 5.2%
unit-linked life fund
Note 5
What this means for the Typical Prudence Bond Customer
A typical customer with a Prudence Bond policy will have seen its value increase
from GBP10,000 to GBP17,772 over the ten years up to 1 May 2007. By investing
with Prudential over the last 12 months, the policyholder's bond is worth 10.9
per cent more than it was on 1 May 2006. This value represents an overall return
of 5.9 per cent over each of the last 10 years.
Note: all figures are after tax and charges
Prudential Personal Pension
Personal pension* Year-on-Year Increase in a Annual Increase in cash-in
value, after allowing for
For policies maturing in 2007 Policy's Value premiums paid during the year
Policy Duration Regular Policy Policy Value Increase in Value
2006 over 2006
In 2007 (2006) Premium Value 2007 %
5 Years GBP200 p.m. GBP15,263 GBP11,455 GBP3,808 11.2%
(4 years)
10 Years GBP200 p.m. GBP32,750 GBP27,305 GBP5,445 10.7%
(9 years)
15 Years GBP200 p.m. GBP63,253 GBP54,525 GBP8,728 11.4%
(14 years)
20 Years GBP200 p.m. GBP133,301 GBP111,062 GBP22,239 17.5%
(19 years)
*Prudential Personal Retirement Plan for policy duration of 19 and 20 years
Note 8
Prudential's Personal Pension performance relative to alternative investment
products
Investment Product Total Payout Annualised
return
Prudential With-Profits Individual Pension GBP133,301 9.3%
(20 year term, GBP200 per month regular premiums)
Average building society account GBP67,066 3.2%
Average balanced managed unit trust GBP119,172 8.3%
Average balanced managed GBP114,352 8.0%
unit-linked pension fund
Notes 5, 8 and 9
What this means for the typical Individual Pension Customer
For a typical male personal pension customer, who has paid GBP200 per month into
their pension for 20 years and is retiring at age 65, the fund is GBP133,301. If
the same customer had decided to transfer the policy last year, he would have
lost out on the 17.5 per cent increase had he kept the policy for another year
(after allowing for the premiums paid in the year).
Note: all figures before tax but after charges
Prudential Savings Endowments
With-Profits Endowment Year-on-Year Increase in a Annual Increase in
cash-in value, after
25 Year Policy (male 30 next Policy's Value allowing for premiums
birthday at outset) paid during the year
Policy Duration Regular Policy Policy Increase in Value
over 2006
In 2007 (2006) Premium Value Value %
Date 2007 Date 2006
10 years GBP50 p.m. GBP7,472 GBP6,293 GBP1,179 8.8%
(9 years)
15 years GBP50 p.m. GBP14,054 GBP12,300 GBP1,754 9.2%
(14 years)
20 years GBP50 p.m. GBP26,557 GBP23,653 GBP2,904 9.6%
(19 years)
25 years GBP50 p.m. GBP49,492 GBP43,674 GBP5,818 11.9%
(24 years)
Note 8
Savings endowments performance relative to alternative investment products
Investment Product Total Payout Annualised return
With-Profits Endowment (25 Year Term, GBP50 per GBP49,492 8.5%
month regular premiums; male aged 30 next
birthday at outset)
Average building society account GBP22,988 3.2%
Average balanced managed unit trust GBP57,138 9.5%
Average balanced managed GBP41,292 7.3%
unit-linked life fund
Notes 5 and 8
What this means for the typical with-profits endowment customer
For a typical customer who has a 25-year with-profits, paying a premium of GBP50
per month, the payout value on a policy maturing this year is GBP49,492, which
reflects an 8.5 per cent return (net of tax and charges), for each of the 25
years.
Note: all figures after tax and charges
SCOTTISH AMICABLE:
Scottish Amicable Personal Pension
Scottish Amicable Personal Year-on-Year Increase in a Annual Increase in cash-in value,
Pension after allowing for premiums paid
Policy's Value during the year
Policy Duration Regular Policy Policy Value Increase in Value %
Date 2006 over 2006
In 2007 (2006) Premium Value
Date 2007
5 Years* GBP200 p.m. GBP15,983 GBP11,965 GBP4,018 12.2%
(4 years)
10 Years GBP200 p.m. GBP35,619 GBP28,938 GBP6,681 14.1%
(9 years)
15 Years GBP200 p.m. GBP69,048 GBP58,352 GBP10,696 13.9%
(14 years)
20 Years GBP200 p.m. GBP125,582 GBP108,325 GBP17,257 13.5%
(19 years)
*PAC (Ex-Scottish Amicable Life) policy.
Note 8
Scottish Amicable's Personal Pension performance relative to alternative
investment products
Investment Product Total Payout Annualised
return
Scottish Amicable With-Profits Individual Pension GBP125,882 8.7%
(20 year term, GBP200 per month regular premiums)
Average building society account GBP67,066 3.2%
Average balanced managed unit trust GBP119,172 8.3%
Average balanced managed GBP114,352 8.0%
unit-linked pension fund
Notes 5 and 8 All figures before tax but after charges
3. With-Profits Annuities
Key points:
- With-profits annuities income increased by up to 15 per cent for the
coming year
- Five-year overall average bonus up to 8.2 per cent (from 5.6 per cent)
- Regular Bonus held at 2.75 per cent for fourth year running
- As a result, all with-profits annuitants, regardless of their Anticipated
Bonus Rate, will receive an increase in income at their annual review
in 2007/8
With-Profits Annuities (WPA)
WPAs are invested in the with-profits fund and promise to pay retirees an income
for the rest of their life. Crucially, WPA generates an income stream that has
the potential to grow. By contrast, a fixed-level annuity will not rise, so a
retiree will find that the value of their annuity is gradually reduced by
inflation.
WPA can also provide an attractive alternative to conventional annuities that
are linked to inflation. Although incomes from inflation-linked annuities are
guaranteed to rise in line with the Retail Price Index, the starting incomes are
usually lower.
How With-Profits Annuities work
Conventional annuity payments are backed by fixed-interest investments (mainly
corporate bonds), so when the yield on bonds falls - as it has recently - so do
annuity rates. Conventional annuity rates are at their lowest for more than 30
years, and while these are essentially risk-free, savers who are considering a
conventional annuity now will be locking themselves into these relatively low
rates.
WPA, on the other hand, link the level of income to the performance of the
with-profits fund, which has a mix of assets that over the longer term gives
them the prospect of income growth. The returns from these investments are paid
to annuitants as bonuses, which may vary from year-to-year. Bonuses are designed
to smooth the ups and downs of the investment markets.
An important factor is the anticipated bonus rate (ABR) that policyholders
choose at the outset. This determines the starting income and is used to
calculate how much the income goes up or down when bonuses are added each year.
If the actual bonuses awarded are higher than the ABR, the annuity payments in
the next year will increase. If they are lower, the annuity income will drop.
Our experience shows that many people opt for a middle range ABR that can
provide a similar starting income to a conventional level annuity. Currently an
ABR of around 3.5 per cent will achieve this for most retirees. This makes
future income growth with a WPA more likely because it's a reasonably low
performance to beat.
By way of an example, a 65-year old man could have bought three types of annuity
when he invested GBP50,000 on 6 April 2003:
Product Starting income Income paid in Increase in income Total income in Extra income over
2003/04 2007/08 over 2003 five years since level annuity
2003 after 5 years
Pru WPA (ABR 3%) GBP3,522 GBP4,474 GBP951 GBP19,642 12%
Level GBP3,522 GBP3,522 - GBP17,612 N/A
RPI Linked GBP2,591 GBP2,944 GBP353 GBP13,748 -22%
Note:
1. The amount of the additional bonus is not guaranteed and it may vary or be
discontinued at any time. However, once added it will remain unchanged
until the next yearly review.
2. The anticipated bonus rate (ABR) determines the starting income and is used
to calculate how much the income goes up or down when bonuses are added
each year. If the actual bonuses awarded are higher than the ABR, the
annuity payments in the next year will increase. If they are lower, the
annuity income will drop.
4. Mortgage Endowments
Key points:
All Prudential and an estimated 96 per cent of Scottish Amicable endowments
maturing in 2007 will meet repayment targets
- We expect 11,051 Prudential policies to mature in 2007, and the average
surplus is expected to be GBP4,400.
- We expect 21,300 Scottish Amicable policies to mature in 2007. Of these,
an estimated 96.3 per cent will meet repayment targets, the average surplus
expected to be GBP3,190. Of the 790 (3.7 per cent) which are not
anticipated to meet their target amount, the average shortfall is expected
to be around GBP390.
- All Prudential endowments maturing in 2006 met their repayment targets
- the average surplus on policies was GBP3,350.
- 95.5 per cent of Scottish Amicable endowment policies maturing in 2006 met
their repayment target with an average surplus of GBP2,746. The remaining
4.5 per cent (936 policies) had an average shortfall of GBP894.
Payout values for mortgage endowment customers
Prudential
Prudential With-Profits Mortgage Year-on-Year Increase in a Annual Increase in
Endowment cash-in values, after
Policy's Value allowing for premiums
25 Year Policy (male, 30 next paid during the year
birthday at outset)
Policy Duration Regular Policy Policy Increase in Value
over 2006
In 2007 (2006) Premium Value Value %
Date 2007 Date 2006
10 years GBP50 p.m. GBP7,299 GBP6,146 GBP1,153 8.6%
(9 years)
15 years GBP50 p.m. GBP13,393 GBP11,721 GBP1,672 8.9%
(14 years)
20 years GBP50 p.m. GBP25,715 GBP22,903 GBP2,812 9.5%
(19 years)
25 years GBP50 p.m. GBP46,695 GBP41,207 GBP5,488 11.8%
(24 years)
Note 8
Prudential mortgage endowments performance relative to alternative investment
products
Total Payout Annualised return
Prudential With-Profits Endowment (25 Year Term, GBP46,695 8.1%
GBP50 per month regular premiums; male aged 30
next birthday at outset)
Average building society account GBP22,988 3.2%
Average balanced managed unit trust GBP57,138 9.5%
Average balanced managed GBP41,292 7.3%
unit-linked life fund
Notes 5 and 8
What this means for the typical Prudential mortgage endowment customer
For a typical customer who holds a 25-year with-profits endowment paying a
premium of GBP50 per month, the payout value on maturity is GBP46,695, which is
equivalent to 8.1 per cent return (net of tax and charges) for each of the 25
years.
Note: all figures after tax and charges
Scottish Amicable
Scottish Amicable With-Profits Year-on-Year Increase in a Annual Increase in
Mortgage Endowment cash-in values, after
Policy's Value allowing for premiums
25 Year Policy (male 30 next paid during the year
birthday at outset)
Policy Duration Regular Policy Policy Increase in Value
over 2006
in 2007 (2006) Premium Value Value %
Date 2007 Date 2006
10 years GBP50 p.m. GBP7,199 GBP5,972 GBP1,227 10.0%
(9 years)
15 years GBP50 p.m. GBP14,368 GBP12,407 GBP1,961 10.7%
(14 years)
20 years GBP50 p.m. GBP25,399 GBP23,223 GBP2,176 6.7%
(19 years)
25 years GBP50 p.m. GBP47,650 GBP41,732 GBP5,918 12.7%
(24 years)
Note 8
Scottish Amicable's mortgage endowment performance relative to alternative
investment products
Total Payout Annualised
return
Scottish Amicable With-Profits Endowment (25 GBP47,650 8.3%
Year Term, GBP50 per month regular premiums; male
aged 30 next birthday at outset)
Average building society account GBP22,988 3.2%
Average balanced managed unit trust GBP57,138 9.5%
Average balanced managed GBP41,292 7.3%
unit-linked life fund
Notes 5 and 8
What this means for the typical Scottish Amicable mortgage endowment customer
For a typical customer who holds a 25-year with-profits endowment paying a
premium of GBP50 per month, the payout value on maturity is GBP47,650, which is
equivalent to 8.3 per cent return (net of tax and charges) for each of the 25
years.
Note: all figures after tax and charges
Red, Amber and Green mortgage endowment status
In accordance with accepted guidelines we monitor how many of our endowment
customers' policies are not expected to meet their repayment targets. This is
shown as 'red, amber, or green', with green being satisfactory, amber indicating
a potential shortfall and red showing a likely shortfall: action should be
taken.
Prudential
Prudential has approximately 201,000 mortgage endowment policies in force.
- 12,000 policies matured in 2003, all of which met their target values.
- 9,271 policies matured in 2004, all of which met their target values
(the average surplus was GBP1,900).
- 8,333 policies matured in 2005, all of which met their target values
(the average surplus was GBP2,200).
- 9,923 policies matured in 2006, all of which met their target values
(the average surplus was GBP3,350).
- We expect 11,051 policies to mature in 2007, all of which are anticipated
to meet repayment targets. The expected average surplus is GBP4,400.
2007 2006 2005 2004 2003
Green 66% 60% 51% 41% 24%
Amber 19% 27% 24% 29% 32%
85% 87% 75% 70% 56%
Red 15%* 13% 25% 30% 44%
*In general, Prudential endowments policies maturing now, are green. Therefore,
if nothing else changes, the number of green letters will reduce as green
policies mature and in turn as a percentage of the overall total Red or Amber
status policies will increase.
Scottish Amicable
Scottish Amicable has approximately 465,000 plans in force.
- 19,000 Scottish Amicable mortgage endowments matured in 2003, of which
2,700 did not meet their target amount (the average shortfall was GBP595).
- 19,356 endowment policies matured in 2004 of which 17,238 (89 per cent) met
their repayment targets, the average surplus being GBP2,900. Of the 2,118
(11 per cent) that did not meet their target amount there was an average
shortfall of GBP890.
- 16,774 endowment policies matured in 2005, of which 15,959 (95 per cent)
met their repayment targets, the average surplus being GBP2,409. Of the
815 that did not meet their target amount there was an average shortfall of
GBP49.
- 20,966 Scottish Amicable mortgage endowments matured in 2006, of which
20,030 (95.5 per cent) met their repayment targets, the average surplus
being GBP2,746. Of the 936 (4.5 per cent) that did not meet their target
amount there was an average shortfall of GBP894.
- We expect 21,300 policies to mature in 2007 with an average surplus of
GBP3,190. Of the 790 (3.7 per cent) policies, which are not anticipated to
meet their target amount, the average shortfall is expected to be around
GBP390.
2007 2006 2005 2004 2003
Green 54% 41% 24% 16% 13%
Amber 36% 43% 42% 31% 22%
90% 84% 66% 47% 35%
Red 10% 16% 34% 53% 65%
5. How bonus rates are managed by Prudential
Again in 2007 annual bonus rates are being maintained on all policies. When we
decide on the rate of the annual bonus, the main thing we consider is the return
we expect our investments to earn in the future. We hold some of this return
back to enable us to pay final bonuses and maintain a flexible investment
strategy.
We target annual bonuses to be a prudent proportion of the expected long-term
future investment return (net of tax where relevant, and charges), and we aim to
change the annual bonus rates only gradually. For the with-profits fund our
expected long-term future investment return is around 8 per cent per annum
gross.
So, annual bonuses look forward and final bonuses look back. Therefore, it's
the final bonus that takes into account the actual investment return over the
term of the policy and it's this element of the overall return that is most
likely to change year-on-year.
6. How you can get access to Prudential's with-profits performance
Access to the with-profits fund is available through a range of Prudential's
investment products. These include:
Prudence Bond:
An investment bond that is designed to give the client a smoothed return based
on the performance of the with-profits fund. It is available via Prudential's
Flexible Investment Plan.
PruFund:
An investment bond that is designed to give the client a smoothed return based
on the performance of the with-profits fund. It differs from Prudence Bond in
that returns are smoothed according to a tested formula. Typically, PruFund's
policyholder returns will more closely reflect the performance of the
with-profits fund over shorter terms. Over the medium to long term, returns on
PruFund and Prudence Bond are expected to be similar. Policyholder returns are
not subject to any MVR throughout the term of investment. PruFund also adds a
quarterly return which is estimated in advance, currently 5 per cent net of life
fund tax and product charges.
With-Profits Annuity:
An annuity that provides income based on both actuarial calculations and the
performance of the with-profits fund. In the current market place, under normal
investment conditions, income from a with-profits annuity is expected to be
greater than a conventional or inflation-linked annuity would provide.
International With-Profits Bonds:
Available in Sterling, US Dollar and Euro denominations. Bonus rates are not
subject to the deduction of life fund tax and are therefore quoted on a gross
basis. The returns and the assets supporting those returns are based in the
currency of the relevant fund (that is, Sterling, US Dollars and Euros).
Individual Pension Plans:
A with-profits pension plan that is designed to give smoothed access to the
returns of the life fund, without deduction of life fund tax (other taxes may
apply).
Trustee Investment Plan (TIP):
A single premium plan aimed at Trustees of Pension Funds. Returns are paid
gross of tax and net of charges. Prudential also offers a 'no MVR Guarantee' at
the end of 5 years. TIP can be used as a core holding to a growth portfolio for
the medium term (5 years or more) and it can also reduce the need for Trustees
to actively make investment decisions as these are taken by Prudential. This
fund cannot lose money at maturity. Regular bonuses once added cannot be taken
away and this, coupled with the 'no MVR guarantee' at maturity, provides an
excellent proposition for Trustees.
Note:
1. The value of an investment may fluctuate and is not guaranteed. An MVR may
be applied. You may not get back the full amount of your investment and,
for investments in the With-Profits Funds as above, the value of the policy
depends on how much profit the fund makes and how Prudential decides to
distribute it.
2. With regard to the Expected Growth Rate for PruFund, this rate is an
indication of how we expect the PruFund Growth fund to grow over the year
and assumes no regular withdrawals are taken. The Expected Growth Rates
for the funds can be found on www.pru.co.uk, these are reviewed at the end
of each quarter and are not guaranteed.
7. Annual and final bonus rates for 2007
Total bonus rates (which is the combination of annual and final bonus rates)
increased on all unitised plans and excellent year-on-year increases in the
value of nearly all with-profits policies.
Prudential takes a prudent, but active approach to fund management, smoothing
and bonus rates. It is this approach that has allowed us to continue to pay
bonuses and provide policyholders with competitive returns over recent years,
despite difficult market conditions.
Prudential will pay two types of bonuses this year:
- Annual (or regular) bonuses are added to policies each year in order to
gradually increase the plan value (excluding MVR, or cash-in charges).
When we decide on the rate of the annual bonus, the main thing we consider is
the return we expect our investments to earn in the future. We hold some of
this return back to enable us to pay final bonuses and maintain a flexible
investment strategy.
We target annual bonuses to be a prudent proportion of the expected long-term
future investment return (net of tax and charges), and we aim to change the
annual bonus rates only gradually.
For the with-profits fund our expected long-term future investment return is
around 8 per cent p.a. gross.
Annual bonus rates are being maintained on all policies.
- Final (or terminal) bonuses may be added when the benefits of a policy
mature, are cashed-in/transferred or the policyholder dies.
These bonuses are used to make up the difference between the guaranteed benefits
(annual bonuses) and the overall smoothed value of each customer's policy asset
shares.
Prudential uses these bonuses to return to each policyholder a fair share of the
assets of the with-profits fund, while smoothing for the impact of market
changes, especially around the date of maturity. Payment of a final bonus is not
guaranteed.
So, in summary, annual bonuses look forward and final bonuses look back.
Therefore, it's the final bonus that takes into account the actual investment
return over the term of the policy, and it's this element of the overall return
that is most likely to change year-on-year.
Examples of bonus rates
Product Regular/Annual New Money Rate %
Bonus Rate %
Prudence Bond 2007 2006 Change 2007 2006 Change
Prudence Bond (Optimum Return) No 3.25 3.25 0.00 5.2 5.2 0.00
Initial Charge
Pension
Pru Personal Pensions 3.25 3.25 0.00 6.75 6.75 0.00
Mortgage Endowments 1.00/ 1.00/ 0.00 N/A N/A N/A
2.00* 2.00*
Retirement Income
With-Profits Annuities 2.75 2.75 0.00 N/A N/A N/A
*-% sum assured / % of attaching regular bonus
Full details of all annual bonus rates are available on request.
So who isn't getting an increase?
Fewer than 500 policyholders may not see an increase in their policy values.
The issue for them is not that they won't see their annual bonus maintained -
they will - but rather it is the impact of charges in the early years on a
long-term policy. This means that over the course of the year, the charges
applied are slightly higher than the bonus paid, thereby reducing the value of
the fund on a net basis.
Unitised policies versus conventional policies
While there are many variations of with-profits policies and plans, they can be
grouped into two areas: unitised policies and conventional policies.
Unitised with-profits policies
Where money is invested in a unitised policy - such as our Prudence Bond or
Personal Pension plan - units are allocated to policyholders, and these units
increase at a steady rate, determined by the annual bonus rate. At retirement or
when the policy is cashed-in, a final bonus may be added. An MVR may apply when
a policy is cashed-in or transferred.
Since these policies are with-profits, they benefit from the smoothing process.
This is different to a unit-linked policy where the value of the units goes up
or down in line with market movements.
Conventional policies
Conventional with-profits policies - such as mortgage endowments - have an
initial amount that is guaranteed to be payable to the policyholder on maturity,
known as the sum assured. Each year the guaranteed amount can be increased by
the annual bonus. At maturity a final bonus may also be added.
8. Notes to Editors:
1. Comparison between Prudential products and other returns are for periods to 1
May 2007
2. The deposit fund values, unit trust values and unit-linked life fund values
in 2007 use actual returns from the relevant 1 May to 31 December 2006 and then
projected to 1 May 2007 using the most recent returns.
3. The Micropal UK Savings Indices assumed are gross of tax for pension
products, net of tax for life products (net of tax, for Prudence Bond) and are
for deposits of GBP2,500+ at 7 day notice or better. The unit trust returns are
based on an average for the "Balanced Managed" sector, offer to bid, gross
income reinvested (net income reinvested, for Prudence Bond). The unit-linked
life fund returns are based on the average returns in the ABI UK Life Fund's "
Balanced Managed - Life Fund" category.
4. Source for stock market returns: M&G.
5. The with-profits investment is not like a bank or building society deposit
account. A with-profits policy may return less than has been invested, in
particular in the early years, whereas a bank or building society deposit
account would return all the customer's capital. Investors should consider
keeping any money which might be needed in the short term in a bank or building
society deposit account which is generally secure and readily accessible.
6. Source: Prudential / Lipper Hindsight. All figures to 31 December 2006 before
tax, charges and the effects of the smoothing process. Past performance is no
guide to the future.
7. Examples of payouts
Individual Pension Cash Value
20 Year Term (GBP200 pm)
Company Final 2007 Final 2006 Change
GBP GBP %
Prudential - PPRP 133,301 127,680 4.4
Standard Life 92,820 102,365 -9.3
With-Profit Bond - GBP10,000 SP
10 year SV
Company Final 2007 Final 2006 Change
GBP GBP %
Prudential - PIB/PSA 17,852 18,189 -1.9
Prudential - Pru Bond 17,772 18,137 -2.0
Commercial Union 16,863 16,654 1.3
CGNU (ex GA) 16,739 16,797 -0.3
Norwich Union 16,513 16,869 -2.1
With-Profits Endowments
25 Year Term
Company Final 2007 Final 2006 Change
GBP GBP %
Scottish Amicable 50,815 51,881 -2.1
Prudential 49,492 49,486 0.0
CGNU Life 47,904 51,927 -7.7
Commercial Union 46,152 51,111 -9.7
Norwich Union 43,451 46,652 -6.9
Standard Life 38,054 41,806 -9.0
Provident Mutual 34,747 38,061 -8.7
Based on a male 30 next birthday, paying GBP50 per month
8. All policy values include final bonus. Details of these final bonus figures
are available upon request.
9. The purpose of illustrating the performance of pension funds against Building
Society accounts is to compare and contrast the values built up by investing in
these products, both of which have their own specific risks and benefits.
10. MVR policy is subject to change without notice.
11. Past performance is no guide to the future. The payment of a final bonus is
not guaranteed. Future rates of bonus are not guaranteed.
12. Full terms and conditions are available on request.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date 20 February 2007
PRUDENTIAL PUBLIC LIMITED COMPANY
By: /s/ Jon Bunn
Director of Public Relations