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Pru payouts cut by up to 10%in interim move

Prudential has cut payouts on unitised with-profits by up to 10 per cent in its first-ever interim bonus declaration.

The move comes amid growing speculation about the distribution of its orphan assets. Pru denies it is close to an announcement despite discussions with the FSA.

It says the discussions concern reattribution of assets rather than distribution and warns there will be no windfalls.

The new payout cuts mean that £10,000 invested 10 years ago in a Pru bond will now pay £22,415 compared with £23,790 previously.

The cuts apply to all unitised with-profits business written with the Pru, Scottish Amicable and Pru International.

The with-profits fund fell by 2.6 per cent in the first half of this year and Pru says its assumptions made at its last bonus declaration were for a rise of 2.4 per cent. Asset mix has remained stable, with 51 per cent in equities.

Minimum premium for the Pru bond has been raised to £10,000. Annual management charge on new business and top-ups has also increased by 0.25 per cent across the range of with-profits products.

Rival providers have praised the Pru for its unusual step of taking out ads in the national press to explain the cuts to consumers and say the rest of the industry should be forced to follow suit.

Pru chief actuary David Belsham says: “The stockmarket has fallen substantially over the last two-and-a-half months and bonuses have to reflect actual returns earned. But the returns are still very good when compared with money on deposit or unit trusts.”

Brooke Christian & Co senior partner Stewart Bro-oke says: “I am disappointed but not surprised by the cuts – whatever happened to smoothing? A £10,000 minimum investment could be too much for many diversified portfolios.”

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