Prudential has designed a version of its prudence bond which has no initial charges and rewards investors who do make any withdrawals with an additional bonus of 0.25 per cent a year.
The Prudence bond offers investors the choice of two with-profits options. The optimum return fund focuses on stocks and shares, while the optimum bonus fund is slanted towards fixed-interest securities and cash for investors who need a higher level of income.
The original version of the prudence bond has a 5 per cent initial charge and a 1 per cent annual management charge. To compensate for the absence of an initial charge, the new version has a slightly higher annual management charge of 1.3 per cent and has lower allocation rates for investments of £20,000 and above. Both versions have a current reversionary bonus of 4.5 per cent, but the no initial charge version has a lower terminal bonus of 6.95 per cent. This is 0.3 per cent lower than the terminal bonus offered under the initial charge version.
Investors who cash in the bond during the first five years must pay an early redemption penalty. The penalty descends from 6 per cent in year one to 1 per cent in year five for investors who pay the initial charge. But where no initial charge is paid, the range is higher at 9 per cent in year one, reducing to 1 per cent in year five.
The Prudence bond is one of the better with-profits bonds available, and it could appeal to older and lower-risk investors who are planning to keep their investment for at least five years.
But there is a cloud on with-profits in general as falling stockmarkets have led to companies reducing their bonus rates. In addition, Royal & Sun Alliance has recently pulled out of the with-profits market, which is worrying because other names could follow.