23 Feb 2000

Prudential bonuses top £2.7 billion

Prudential today announced that is to add bonuses of £2,736 million to the policies in its main UK with-profits fund. As a result, the returns on a typical 25 year regular premium policy maturing in 2000 will be 12.7% per annum for a savings plan and 14.5% per annum for a pensions policy. These returns compare with an average equivalent inflation rate of 5.1% per annum over the same period, and average returns to customers from building societies of 5.8% per annum net and 7.7% per annum gross, again over the same period.

Total claim pay-outs will be increased slightly compared to last year on a 5-year Prudence Bond. Prudence Bond is Prudential’s best selling product, and at 1 May 2000 a Prudence Bond held for five years will produce an overall return of 59%.

Total claim pay-outs for our popular 10 year endowments have been held unchanged. We expect to pay out over £450m of claims in 2000 on 10 year endowments that were taken out in 1990 as part of our “Savings 2000” campaign.

“Our policy of investing a high proportion of our funds in equities has paid off over the long-term and enabled us to give excellent real returns to policyholders”, said David Belsham, Prudential Assurance Company’s Appointed Actuary.

Prudential aims to allocate profits to with-profits investors in a fair and equitable manner and to provide good value to policyholders. The current economic situation of low inflation and low interest rates has been reflected in reductions in reversionary bonus rates to ensure that Prudential continues to be able to provide the best possible overall returns to its policyholders.

Enquiries:

David Belsham, Appointed Actuary, Prudential Assurance Company
Tel: 020 7548 6151

Jeremy Reynolds/Kevin Russell, Head of Media Relations, Prudential
Tel: 020 758 3721/3723

A 10 year £50-a-month direct debit savings policy taken out by a 29 year old man 10 years ago will pay out £9,673 (£9,673), an effective rate of return of 9.2% (9.2%) p.a. after tax.

A 25 year £50-a-month direct debit savings policy taken out by a 29 year old man 25 years ago will pay out £95,874 (£103,090), an effective rate of return of 12.7% (13.2%) p.a. after tax.

A £200-a-month pension policy taken out 20 years ago will have a cash value of £203,807 (£212,218) and a return of 12.8% (13.2%) p.a.

A £200-a-month pension policy taken out 10 years ago will have a cash value of £40,111 (£40,125) and a rate of return of 9.9% (9.9%) p.a.

The effective rates of return on savings policies exclude the benefits of life assurance premium tax relief which would, in practice, have been available for the 25 year policies. The rate of return on pensions policies ignores tax relief on premiums and tax on benefit payments.

The total value of bonuses declared for 1999 is £2,736 million for the PAC main fund and a further £618 million for the closed Scottish Amicable Fund.

The building society returns are based on accounts available for a deposit of £2,500.

The Prudence Bond return is based on 100.25% allocation, 5% bid/offer spread, invested for five years to 1 May 2000.

Reversionary bonus rates on unitised life business have been reduced from 5.25% to 4.75%, and on unitised personal pension business from 5.75% to 5.25%.

Past performance is not necessarily a guide to the future and existing bonus rates cannot be guaranteed in the future. The return on surrender of a with-profits Prudence Bond can be reduced by the application of a market value reduction. Terminal bonuses can be reduced or removed retrospectively.

Approved by The Prudential Assurance Company Limited, regulated in the conduct of investment business by the Personal Investment Authority.

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Prudential plc is an international company incorporated in the United Kingdom, and its affiliated companies constitute one of the world’s leading financial services groups. It provides insurance and financial services directly and through its subsidiaries and affiliates throughout the world, and it has been in existence for over 170 years. Prudential plc is not affiliated in any manner with Prudential Financial, Inc, a company whose principal place of business is in the United States of America, or the Prudential Assurance Company, a subsidiary of M&G plc (a company incorporated in the United Kingdom).