31st August 2011

Prudential: Income Choice Annuity guarantee charges

We have seen extreme volatility in financial markets around the world in recent weeks.  This has included:

• The biggest fall in the FTSE 100 in nearly 3 years
• US government credit rating debt downgraded by S&P
• A European debt crisis -  and concerns that it may get worse

The impact of this turbulence has been wide ranging, and falling bond yields have already reduced conventional annuity rates. In the world of Income Choice Annuity it has had the effect of sharply increasing the cost of providing guarantees.

Our Income Choice Annuity guarantees to pay clients an income for life and also guarantees that their income will never fall below a certain amount – the Secure Level.  The charge for these guarantees is included in the Yearly Charge (the Yearly Charge is deducted before we announce the Smoothed Return), but any adjustment required during a Smoothed Return year is reflected as an increase or decrease to starting incomes. 

In order to maintain a sustainable and fair pricing strategy and ensure that new and existing clients are treated fairly, we closely monitor the cost of providing these guarantees and make changes when necessary.  To be fair to both current and new clients, the increasing costs of providing these guarantees will be reflected in starting incomes.  This approach underlines Prudential's commitment to Advisers and customers.

As a result of these market conditions, from Monday 12 September starting incomes for our Income Choice Annuity will be reducing by 2.1%. This change will apply to new business quotes from that date; existing customers are not affected.

Transitional Arrangements

• Any quotations produced prior to 9 September will not be impacted by the change, providing the case is completed within the guarantee period of the quotation (currently: 42 days).
• Any illustrations issued on or after the 12th September will be on the new basis.

Please contact your Prudential Account Manager for further information or assistance.

Investments