20 Feb 2007

Another excellent year for Prudential's 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
  • £2.5 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 - (£10,000 single premium) up 10.9 per cent
  • 15 year Personal Pension (£200 per month regular premiums) up 11.4 per cent
  • 20 year Personal Pension (£200 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 £50 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
(10 year, £10,000 single premium)
£17,772 5.9%
Average building society account £12,015 1.9%
Average balanced managed unit trust £18,698 6.5%
Average balanced managed unit-linked life fund £16,593 5.2%
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 (20 year term, £200 per month regular premiums) £119,401 8.4%
Average building society account £67,066 3.2%
Average balanced managed unit trust £119,127 8.3%
Average balanced managed unit-linked pension fund £114,352 8.0%
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 £50 a month) would be worth:

  • £49,492 if invested with Prudential
  • £43,451 if invested with Norwich Union, and
  • £38,054 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: £40,481 on 20-year individual pension; £1,259 on the 10-year surrender value of a single premium with-profits bond; and £11,438 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:

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

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