Prudential – Prudential Flexible Income Drawdown Plan
Type: Income drawdown
Minimum investment: Lump sum £100,000
Investment choice: Choice of three investment strategies - cautious, standard, adventurous or 25 funds from M&G, Prudential, Merrill Lynch, Newton, Invesco Perpetual, UBS and Schroder.
Charges: Annual 0.8 - 1.5%
Allocation rates: 96 - 99%
Commission: Initial 3%, renewal 0.5%
Tel: 0845 0757576
Nigel Hemming, director, Allen French & Co
Steve Perdisatt, research manager, Burns Anderson
David Wingar, partner, Courts Independent Financial Management
Investment options 6.6
Company's reputation 6.3
Past performance 5.6
Product literature 7.0
Prudential introduces its flexible income drawdown plan with the choice of three investment strategies - cautious, standard, adventurous – or self-management with 25 funds from M&G, Prudential, Merrill Lynch, Newton, Invesco Perpetual, UBS and Schroder.
Asking how the plan fits into the market, Perdisatt replies quite well. He adds: "This product is a useful addition to the market, the options available add a good deal of flexibility that is not readily apparent in other products available." While Wingar feels it is okay with nothing appearing to stand out as being special. Hemming says: "It is not revolutionary, just a development of existing arrangements."
Discussing the type of client the plan would be suitable for, Wingar thinks clients with smaller drawdown funds, up to £150,000. Hemming points to the usual phased drawdown or drawdown client, perhaps angled at those looking to go past age 75 using the flexible lifetime annuity. Perdisatt says: "The plan is best suited to clients requiring other options than a fixed annuity. Those individuals who are willing to take a degree of investment risk, who do not like the restrictions of annuity purchase. Particularly wealthier individuals, more sophisticated whose other assets allow them to be more adventurous."
Winger and Hemming do not think the plan provides any marketing opportunities. Whereas Perdisatt feels the plan offers some opportunities because of the different options and permutations available which will give it an edge over its competitors. He says: "It has more going for it than just drawdown or phased and the Prudential needs to highlight this, which I am sure they will."
Analysing the main useful features and strong points of the plan, Hemming says: "The apparent flexibility of the contributions and as the brochures stress, the seamlessness of the range. The proof will be in whether this can be administered. In my experience monitoring phased income drawdown is very difficult when measuring risk levels. The lack of market value reduction on valuation for financial purposes is a major plus." Perdisatt says the options of drawdown, flexible annuity, unit-linked annuity, with-profit annuity and a fixed annuity give it a good range of flexibility. The option to convert to the flexible lifetime annuity before or at age 75 allows for uninterrupted investment, probably up to age 90. This is useful flexibility if market conditions are adverse.
Wingar thinks the range of investment options is normal, whereas Perdisatt feels they are excellent. He says: "I like the lifetime investment strategies. The self-invested personal pension facility is useful although others have it. The restrictions on with-profit investments are probably correct, certainly at the moment." Hemming says the investment options are very good and with the additional aspects of self-investment, the choices should be wide enough for all.
Hemming feels the complexity of the plan is a disadvantage, but he goes on to say that this applies to all such plans. Perdisatt says clearly it is not for everyone. Almost by definition it is complicated. It places demands on both the adviser and client to make the most of it offerings. Wingar feels that there is not enough information on the self-investment option. He says: "The Prudential does not appear to be offering this as a main benefit."
Turning next to the flexibility offered by the plan, Hemming and Perdisatt think it is very good. Wingar feels the flexibility of the product is okay, whilst the flexibility of the investment choice maybe limited.
Looking at Prudential's reputation, Perdisatt says: "In recent years, amongst IFAs it has suffered somewhat. However things have improved more recently with some innovative product launches. The drop in Prudential's free assets, two-thirds reduction over two years,is a concern but its with-profits financial strength remains good." Hemming says Prudential with M&G is very good.
Analysing Prudential's past performance, Wingar thinks it is average and Hemming thinks it is good. Perdisatt says its conventional with-profits has been okay, although its unitised with-profits bond has slipped somewhat. Overall, its with-profits returns are slightly above average, but unit-linked performance is not exceptional.
Discussing which plans they see as providing the main competition, the panel list umbrella type products offered by the likes of Scottish Equitable and the Sipp drawdown products from Norwich Union and Standard Life.
Wingar and Hemming feel the charges are fair and reasonable, Perdisatt says: "Time will tell if they are fair, but it is not cheap. Ninety six per cent allocation in exchange for 3 per cent commission is a hefty charge in today's environment. It is difficult to compare against other products as it does offer extra flexibility."
The panel agree that the commission payable is fair and reasonable, Hemming says; "The higher give up is attractive, but I am not sure that the 0.5 per cent renewal commission should be encouraged, as it is difficult to justify." While Perdisatt says: "The plan offers some choices. However, the plan is complex enough to warrant more options versus renewal commission. It should offer more of a trade off between up front and renewal commission. I do not like the facility to sacrifice renewal commission on plans such as this which require regular ongoing reviews."
Looking at the product literature, Perdisatt feels it is a bit bland and unspectacular. However, the technical concepts are explained well and most of the material is well presented and digestible. Hemming says: "On the whole, good. I would have liked to have seen more diagrams in the clients' versions, there is too much writing. When will providers learn that clients do not read the material in general." Wingar thinks that it is good and very concise.
Summing up, Hemming says: "The mention of the capital taxes position re inheritance tax in the adviser guide was exceptional. I have not seen this on other literature, but it should be there." Perdisatt says: "In my view the Prudential needs to do more to demonstrate its commitment to the UK IFA market. Its focus is on the non-UK markets and the dropping of the Scottish Amicable brand is somewhat worrying, however, developments of plans such as this will help its cause."