A Guide to your. Income Choice Annuity. Income Choice Annuity

Transcription

1 A Guide to your Income Choice Annuity Income Choice Annuity

2 Welcome 02 Income Choice Annuity

3 Contents 04 An overview of the Income Choice Annuity 05 Things to consider at the beginning of your plan 06 Your attitude to risk and choosing your income 12 Things to consider during the lifetime of your plan 13 Things you might need to know 14 The end of your plan 15 Further information Income Choice Annuity 03

4 An Overview of Income Choice Annuity Our Income Choice Annuity pays you a regular income for life. Your income then has the opportunity to grow, by being linked to the performance of the Prudential With-Profits Fund, although it is possible that in some years your income may go down. At the same time, we guarantee not to pay you less than a certain amount of income (the "Secure Level"), no matter how our Fund performs. You usually have the added flexibility of being able to select an income from within a range that we offer you. At a glance: Potential for your income to grow Choice of starting income Changing your income level Guaranteed minimum income Income for your loved ones Potential for higher income for certain health and/or lifestyle conditions Switch to a Prudential conventional annuity (called Prudential Guaranteed Pension Annuity) Help safeguard against the effects of inflation Your income is linked to the performance of our With-Profits Fund, one of the largest and financially strongest With-Profits Funds in the UK. Remember your income can go down as well as up and could fall below the income you start with. However, we'll never pay you less than your Secure Level. You select your preferred starting level of income from the range that we offer you. You can usually change your level of income every year on your plan anniversary. We guarantee we will never pay you less than a certain amount no matter how our With-Profits Fund performs (we call this your "Secure Level"). This means you will always know the minimum income that you could receive. You have the option to provide an income for your loved ones after you die. There are certain rules around who can qualify for this. Please see our "Key Features" brochure for details. If you and/or your partner (if you've chosen the joint life option) currently have (or have ever had) certain medical/lifestyle condition(s) you may be entitled to a higher income. You can convert to a Prudential conventional annuity on any of your plan anniversaries. Once you've switched, you can't change back. Income Choice Annuity could help protect against the effects of inflation as your income has the potential to grow each year. For more detailed information about how our Income Choice Annuity works, please see the "Key Features of the Income Choice Annuity" brochure. 04 Income Choice Annuity

5 Things to consider at the beginning Income Choice Annuity has the potential to help people who are concerned about the impact of inflation on their income over the period of their retirement. People are generally living longer these days Women Men Age ,000 working Source: April ,839 7,812 6, years average 21 years average 6,103 retired On average a 65 year old woman is likely to be in retirement for 24 years and a 65 year old man for 21 years. This means that inflation could have a significant impact on retirement income over time. Impact of inflation on your income 5,394 Growth potential for your income Income Choice Annuity offers the potential for your income to grow which could help offset the impact of inflation. However, your income could fall as well as rise. You have the potential for growth with Income Choice Annuity because it is linked to the performance of the Prudential With-Profits Fund. > The Prudential Assurance Company Limited (PAC) With-Profits Fund is one of the largest with-profits funds in the UK. The Fund consists mainly of with-profits business, but it also contains a significant amount of non-profits business. Further details can be found in our Principles and Practices of Financial Management (PPFM). > The total level of assets backing the with-profits business in the Fund was 76.7 bn at 31 December 2014, after allowing for the impact of the transfer of the Hong Kong business. Our With-Profits Fund aims to smooth some of the extreme ups and downs of short-term investment performance in order to deliver steady performance over the medium to long-term. We achieve this by holding back some of the investment returns in good years with the aim of using this to support bonus rates in years where investment returns are lower. Now Years Assuming 2.5% annual inflation, 10,000 today could be worth just 5,394 in 25 years time. This is just an example, as inflation could be more or less. Income Choice Annuity 05

6 Your attitude to risk and choosing your income There are two main considerations when choosing an income from your Income Choice Annuity: > Firstly, you need to consider your attitude to risk and the level to which you want to balance risk and potential growth. > Secondly, you need to consider how much starting income you want. Announced Smoothed Return and Required Smoothed Return The Smoothed Return is your share of the overall profits from our With-Profits Fund. We announce this every year, so call it our Announced Smoothed Return. Your Required Smoothed Return is the level of Smoothed Return that your annuity will need to maintain your income. For each level of starting income we tell you what the Required Smoothed Return will be. The higher the income you select the higher the Required Smoothed Return will be to maintain your income. And the lower the income you choose, the lower the Required Smoothed Return will be, so having a lower Required Smoothed Return means you ll need a lower level of Fund performance for your income to potentially grow (but obviously you will get a lower starting income). To get the right income for you, you should balance the income you need at the start of your plan with the level of risk you are willing to take of your income falling in the future. 06 Income Choice Annuity

7 What income can I choose? You can choose from a range of incomes. Lowest income: this comes with the lowest Required Smoothed Return each year. This will give you the lowest income at the start, but gives your income more potential for growth in the future. Highest income: this comes with the highest Required Smoothed Return each year. This means there is a greater chance of your income falling in the future, but you get a higher income at the start. Something in-between: you can select a starting income with a specific Required Smoothed Return somewhere within the range. This can help balance the risk and the growth potential. Obviously depending on what you choose your income will be more or less likely to increase or decrease in the future. Some examples Comparison of income levels at the start We've included some examples that show the impact of choosing different income levels, either minimum (0% Required Smooth Return), maximum (5% Required Smooth Return) or somewhere in between (3% Required Smooth Return). These are examples only, and do not relate to any particular individual. The examples are based on a single life 65 year old with 50,000 pension fund after tax free cash, paid monthly in advance and who lives for 25 years. They are based on Prudential starting incomes, rates correct at March 2015, and an assumed Smoothed Return of 3% each year. Comparing the income at the start Minimum Income Choice 0% Required Smoothed Return 1,888 Income Choice 3% Required Smoothed Return 2,795 Maximum Income Choice 5% Required Smoothed Return 3,401 Income Choice Annuity 07

8 Some examples continued Comparison of income levels over time The examples also show what would happen to your chosen income if we announced the same Smoothed Return of 3% year on year for the next 25 years. This is of course highly unlikely to happen but it does give you an idea of how the incomes might differ. They also assume that you do not choose to change your income level at any point (although you usually do have the flexibility to do so). Comparison of income levels over time assuming we announce 3% Smoothed Return each year ,888 Minimum Income Choice 0% Required Smoothed Return Income ,795 In between Income Choice 3% Required Smoothed Return 3,401 Maximum Income Choice 5% Required Smoothed Return Years Past performance is not a reliable indicator of future performance. The Smoothed Returns we actually announce are based, mainly, on the performance of our With-Profits Fund and could be higher or lower than the figures shown. It is also highly unlikely that we will announce the same Smoothed Return each year. Income from the Income Choice Annuity is not guaranteed. 08 Income Choice Annuity

9 What does the graph show you? The red line shows what your income may have been if you chose the lowest level offered from the start, 0% Required Smoothed Return. As you can see in this example, the income increased over time. The orange line shows what your income may have been if you chose a starting income that was somewhere between minimum and maximum, so in this example 3% Required Smoothed Return. Here the rise in income is more gradual and does not reach as high, but it also does not fall. The green line shows what your income may have been if you chose the highest level offered, 5% Required Smoothed Return. The income started higher, but has fallen over time, and you can see the income in the early years was more. The announced Smoothed Return and income from our Income Choice Annuity can fall as well as rise at each policy anniversary. We ll never pay less than your Secure Level Income Choice Annuity 09

10 What have we actually announced for Income Choice Annuity? This table shows our Announced Smoothed Returns since we began offering Income Choice Annuity. So for example, for someone with an effective date between 6 April 10 and 5 April 11, they would have had an Announced Smoothed Return of 6.50% at their 1st Anniversary, 4.50% at their 2nd Anniversary, 4.50% at their 3rd Anniversary and 6.50% at their 4th Anniversary. Effective date The 1st Anniversary Announced Smoothed Returns on The 2nd Anniversary The 3rd Anniversary The 4th Anniversary The 5th Anniversary The 6th Anniversary The 7th Anniversary 9th March 09 5th April % 8.5% 9.0% 7.0% 6.0% 8.0% 8.5% 6th April 09 5th April % 7.1% 6.5% 5.0% 7.5% 8.5% 6th April 10 5th April % 4.5% 4.5% 6.5% 7.0% 6th April 11 5th April % 4.5% 6.5% 7.0% 6th April 12 5th April % 6.5% 6.5% 6th April 13 5th April % 6.0% 6th April 14 5th April % Source: Prudential. Past performance is not a reliable indicator of future performance. What this would have meant for a customer's income Below are some examples showing what could have happened to a customer s retirement income over four years based on what we've actually announced. The table shows changes in income for three customers who bought an Income Choice Annuity between 6 April 10 and 5 April 11. One customer chose a 1% Required Smoothed Return, another chose 3% Required Smoothed Return and the third chose 5% Required Smoothed Return. These examples are based on Smoothed Returns we have announced, and show that income can increase, decrease or remain the same each year, and varies by the level of Required Smoothed Return you choose. The examples do not represent actual customers. Announced Smoothed Returns Customer who chose a Required Smoothed Return of 1% Customer who chose a Required Smoothed Return of 3% Year 1 Income at start 2,128 2,763 3,400 Year % 2,244 2,857 3,449 Year % 2,322 2,899 3,433 Year % 2,402 2,941 3,417 Year % 2,533 3,041 3,466 Year % 2,683 3,159 3,532 Past performance is not a reliable indicator of future performance. Customer who chose a Required Smoothed Return of 5% Important information on these tables The figures for the examples are based on a 65 year old, single person with a 50,000 fund value after tax-free cash and paid monthly in advance. Figures are for illustrative purposes only and do not relate to any particular individual. Changes in the income payable from an Income Choice Annuity will depend on the relationship between the Smoothed Return announced and the Required Smoothed Return needed to maintain the customer s chosen income. 10 Income Choice Annuity The Smoothed Return announced will depend mainly on the investment performance of our With-Profits Fund, the operation of smoothing, changes in how long we expect our plan holders to live and the expenses we incur. However, there are other factors that can affect your income such as a major fall in stock market values after you buy your annuity, or a prolonged period of stock market volatility. Please see the Key Features of the Income Choice Annuity brochure for details. The income from an Income Choice Annuity can fall as well as rise at the policy anniversary. The Smoothed Return can be changed and is not guaranteed until it becomes payable at the next policy anniversary.

11 Minimum income guarantee Income Choice Annuity comes with a very important income guarantee which is called the Secure Level. Regardless of what happens, we ll never pay less than the Secure Level. Your Secure Level can be found on your quote. Providing for your loved ones You can choose a Joint Life option which means we will usually continue to pay an income after you die to your spouse, civil partner or a dependant. This means those you care about should continue to receive an income. Another option available to you is a Payment Guarantee Period normally of up to 10 years. If you choose this option and die within the period then your income will normally continue to be paid to your estate for the remainder of the guarantee period. The guarantee period starts at the same time you take out your annuity. Choosing either or both of these options will reduce your income level. Income Choice Annuity 11

12 Things to consider during the lifetime of your plan How your income changes The level of income you receive each year may go up or down depending on the difference between your Required Smoothed Return and the Smoothed Return we announce for your annuity (which is mainly based on the performance of our With-Profits Fund). However, there are other factors that can affect your income such as a major fall in stock market values after you buy your annuity, or a prolonged period of stock market volatility, as well as changes in our assessment of the life expectancy of people with Income Choice Annuity. Please see the "Key Features of the Income Choice Annuity" brochure for full details. If your Required Smoothed Return is And the Smoothed Return announced is The table above gives you examples of how your income could change over time: Your income would 3% 1% Go down by about 2% 3% 3% Stays the same 3% 5% Go up by about 2% Each year on the anniversary of your starting income, we ll send you a statement which will tell you the Smoothed Return announced for your annuity, your new income level and a new income range. You can usually change your income each year by choosing from this new range if you want to, or stick with the income shown on your statement. Why would I want to change my income? There are many reasons people both increase and decrease their incomes. For example, if you selected the lowest income at the beginning you may decide that you want to select a higher income later on. Another example could be if someone wanted to select a lower income at some stage to help with tax planning e.g. to move into a lower tax bracket. These are just examples and you shouldn't look upon this as financial advice or a recommendation of a particular course of action. You should consider your own circumstances fully, and speak to your financial adviser if you need advice. Tax and your income Income from an annuity is taxed as earned income. The rate of tax will depend on your personal circumstances and your tax code. HM Revenue & Customs (HMRC) will send us details of your tax code. Every year, by 31 May, Prudential will issue you with an end of year Tax certificate (known as a P60). This is based on our understanding, as at February 2015 of current legislation and HMRC practice, all of which are subject to change. The impact of taxation (and any tax relief) depends on individual circumstances. Switching to a conventional annuity You have the opportunity to switch to a Prudential conventional annuity called the Prudential Guaranteed Pension Annuity at each plan anniversary, although you can't switch back again. You may want to switch so you have the security of knowing exactly what your income will be. However, if you choose a level conventional annuity your income will not have the opportunity to grow but also cannot go down. You will not be able to switch back to an Income Choice Annuity. If you are unsure what decision to take, you should speak to your financial adviser. For further information please see the Key Features of the Income Choice Annuity brochure. 12 Income Choice Annuity

13 Things you might need to know What happens if I change my mind once I have bought my annuity? Like most annuities, once you have bought it you can t cash it in. However, a key advantage of our Income Choice Annuity is that you can usually change your mind about your income levels and you can switch to a Prudential Guaranteed Pension Annuity at any plan anniversary. I move abroad? If you move abroad, we can continue to pay your income either directly into a UK based bank or building society account in your name or into an overseas account in your name. Paying into an overseas account however will depend on which country you move to. Your bank may charge you too. We will pay your income in the local currency but the amount will be calculated in sterling. This means your income will be subject to exchange rates and may take longer to reach you. I change my bank account or my address? Simply tell us and we will make the necessary changes. I am no longer able to manage my financial affairs? Sadly, some people become unable to look after their financial affairs due to deteriorating health problems. Although this is not a nice subject to discuss it's a good idea to plan ahead and designate someone to contact us on your behalf. To protect you and your security we cannot provide anyone with details of your annuity without your permission. Flexibility to change your income each year Income Choice Annuity 13

14 The end of your plan What happens after I die? This depends on the options that you choose when you take out your annuity. For example, if you took out a Joint Life annuity, we will normally make arrangements to pay your dependant. If you have chosen a Payment Guarantee Period and die within this period, then we will usually continue to pay the pension income to your beneficiary until the end of the guarantee. If you haven t selected any of these options then your payments will stop. If someone is unsure what to do about your annuity income after you have died then they can call us and we can help. 14 Income Choice Annuity

15 Further information If you have any specific queries, please contact your financial adviser in the first instance. For more information about the Income Choice Annuity, please have a look at the Key Features of the Income Choice Annuity. For more information about the Prudential With-Profits Fund, please see "Your With-profits Plan a guide to how we manage the Fund". Copies of the Key Features and With-Profits Guide are included in your quotation pack but if you need another copy you can view these on our website To contact us: > Call us: (lines are open 8.00am to 6.00pm, Monday to Friday) > Write to us at: Prudential, Lancing BN15 8GB Income Choice Annuity 15

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