Prudential will next week reveal its plans to overhaul the annuity market fundamentally with a new product expected to be launched this year.
Money Marketing understands the product will feature a closed fund where the policyholders receive a share of the pot each year through a system of bonuses. The income of surviving policyholders will be bolstered by those that die until the entire fund is paid out.
Industry sources say the life office has been working with the Inland Revenue on its plans for the last 12 months.
A senior Pru insider says the life office was aware that widely anticipated annuity reform would not feature in last week's Budget which stated: “The Government believes developments in the annuity market can help to address some of the concerns expressed.”
Parliamentary lobbyists are anticipating the changes heralded by the Pru will be behind the demise of Conservative backbench MP John Butterfill's private members bill which proposes relaxing the current annuity requirements.
The second reading of the bill is likely to be scuppered next Friday as it is expected to run out of Parliamentary time.
Prudential is closely guarding details of the product and has made many of the parties involved in its development sign confidentiality contracts.
Pru spokesman Darragh Leeson says: “There will be further information available on Monday on the direction we will be taking the annuities market but there will not be an IFA product available from next week.”
The Pru's share price plummeted by 14 per cent from 897p to 772p this week on the announcement of its £18bn merger deal with US insurance giant American General, with market sentiment regarding the shock deal as overpriced.
Pru chief executive Jonathon Bloomer will run the combined group. It will have a market capitalisation of £30.8bn and £229bn funds under management.
The move has met with criticism from IFAs who believe the Pru, having disbanded its UK direct salesforce, is taking a big risk in the US market.
Richard Jacobs Pension & Trustee Services managing director Richard Jacobs says: “I am very concerned at the direction that the Pru is taking. You have to ask why are they doing this, having gone to all the trouble of rationalising their UK business. It smacks of glory hunting.”