Suitability Report paragraphs for the Flexible Retirement Plan

Transcription

1 Suitability Report paragraphs for the Flexible Retirement Plan For clients saving for retirement or taking an income from drawdown. Please note the Flexible Retirement Plan closed to new customers on 17 September We appreciate that you ll have carefully considered their personal and financial circumstances, financial needs, priorities and risk profile when giving your clients a personal recommendation. These paragraphs are designed to help you prepare your suitability report for your client. They re not intended to form the full content of the suitability report. It is your responsibility to ensure that the report includes your clients demands and needs, why you consider the product is suitable on the basis of the information that they have provided to you and makes clear any disadvantages that the product has. Please note that if you use these paragraphs, or similar text for any reason, you are responsible for ensuring that they are compliant. Whilst every care has been taken to ensure the accuracy of the following information, Prudential can accept no liability if you decide to use it. Please ensure that you are using the latest version of this document available at: Product Information What is the Flexible Retirement Plan? Eligibility. The Prudential Flexible Retirement Plan (FRP) offers the convenience of combining the key retirement planning products under one product wrapper. This includes a Personal Pension for retirement savings, a number of investment choices including Self Invested Personal Pension (SIPP) options managed by Suffolk Life and Drawdown for greater flexibility over how income can be taken in retirement. Investment into the Flexible Retirement Plan (Personal Pension) is available for those who are between 16 & 75 years of age and are a resident in the UK. For those who wish to enter Drawdown, this is accessible from age 55 to before the investors 89 th birthday. The value of the investment can go down as well as up. The value could fall below the amount invested. Different funds have different levels of risk and the Flexible Retirement Plan Short Fund Guide will give more information on this. Risks associated with the Flexible Retirement Plan. If the total charges taken from the Flexible Retirement Plan are more than any overall growth achieved the plan will fall in value, possibly to less than has been invested. As there is no limit to the amount of income that can be taken from the plan, it s important to remember that the pension fund may be exhausted and that invested money should last for as long as is intended. Charges will reduce the value of the retirement plan and they may increase in the future.

2 Inflation will reduce what can be bought in the future. The investors personal tax situation or the way the bond is taxed could change, reducing the amount that is received or increasing the tax that is to be paid. Tax rules may change in the future. If the plan invests in the With-Profits Fund and money is taken out of that fund, including to move to a Personal Pension to Drawdown, Prudential may reduce the value by applying a market value reduction (MVR). Market Value Reduction (MVR). Prudential may adjust the value of the investors fund, if the value of the assets underlying the plan is less than the value of the investors plan, including all bonuses. An MVR is designed to protect investors who are not taking their money out and its application means that the return received is based on the earnings of the With-Profits Fund over the period the investors payments have been invested. How are client contributions paid in? The maximum contribution that can be paid into the Flexible Retirement Plan is 1,000,000. In some circumstances Prudential may accept contributions larger than 1,000,000. For more information on placing investments larger than 1,000,000 please speak to your financial adviser. The minimum regular contribution required to start the plan is 100 per month or 1,200 per year after which there is no minimum increase. If investing in the Self Invested Personal Pension under either of the SIPP options, at least 10,000 needs to be invested into that fund. Prudential is not able to accept new monies from customers living overseas. If the investor moves abroad and is no longer a resident in the UK, this will impact on their ability to top up this product. How can my client access their pension benefits? The government currently allows people to start taking their benefits from the age of 55, even if they are still working. Benefits may be taken earlier if your client is in ill-health. The minimum age from which your clients can access their personal pension is expected to increase from 55 to 57 in 2028 and remain at 10 years below the state pension age. If your client wishes to remain invested in a personal pension beyond the age of 75, they will need to move to an arrangement with another provider. Clients can opt for a phased approach, transferring parts of their pension fund into Drawdown or an annuity over time and leave the rest in their pension plan.

3 Taking benefits as an annuity. If your client chooses to buy an annuity, they can usually take up to 25% of their pension fund as a tax-free lump sum. The rest is then used to buy an annuity. They do not have to buy an annuity with the same provider that they have invested their pension with. Taking benefits through drawdown. If your client invests in the drawdown plan they can use their money in that plan to take a regular income without buying an annuity. They can also choose to move their money to the drawdown option, when they can usually take 25% of their pension fund as a tax free lump sum. Where can my client invest their money? An extensive range of investment choices are available for the Flexible Retirement Plan from Prudential and many other fund managers: Prudential s PruFund range of funds which invest in Prudential s With- Profits fund and offer capital guarantees, on selected funds. There is an additional charge associated for this guarantee. Prudential s With-Profit fund which aims to smooth the ups and downs of direct stockmarket investment performance. The With-Profit Fund includes guarantees for which there is a charge; please see the key features document for further details. Prudential s range of Dynamic Portfolio funds actively managed by the Prudential Portfolio Management Group (PPMG). Additional fund choices, covering a range of over 130 investment funds from Prudential and other external fund managers. These funds offer additional choice. Self Invested Fund options that allow the client to select a range of asset types other than Prudential funds. A ready-made Personal Pension lifestyle option which potentially reduces the exposure to risk as retirement approaches. Prudential s PruFund Range Of Funds. PruFund funds aim to grow your clients money while giving them a smoothed investment experience. The PruFund range of funds all invest in Prudential s With-Profit Fund, which is one of the largest with-profits funds in the UK. However there are differences across the range of PruFund funds in their objectives and mix of assets, and how PruFund delivers returns to investors when compared to other with-profits business, which means the returns received by investors will vary by fund choice. As a with-profits investment, PruFund funds are designed to spread risk by investing in a range of different asset types. The PruFund funds have an established smoothing process which aims to provide some protection from the extreme short term ups and downs of the markets.

4 Expected Growth Rates (EGRs) Prudential sets EGRs, these are the annualised rates the investment would normally grow at. The EGRs reflect Prudential s view of how they think each PruFund fund will perform over the long term (up to 15 years). Each PruFund has its own EGR and investments into a PruFund will normally grow daily by the relevant EGR. EGRs are reviewed every three months, when they could rise or fall. In certain circumstances Prudential may need to suspend the smoothing process for one or more of the PruFund funds. Unit Price Adjustments (UPAs) Range of funds Although Prudential use a long-term view of performance to set EGRs, they also have to take into account shorter-term performance. On a daily basis, if the shorter -term differs too much from the current Expected Growth Rate, Prudential would have to amend the value of the fund up or down to ensure they are not returning too much or too little. These are known as Unit Price Adjustments (UPAs). There is a range of PruFund funds designed to suit different attitudes to risk and reward. They are designed for those wishing to invest for up to 5 to 10 years or more. There are four Risk Managed PruFund funds and also the PruFund Growth and Cautious funds, the latter two include some guarantee options (at an additional charge). For the range of PruFund funds, what a client will receive will depend on the value of the underlying investments, the Expected Growth Rates as set by the Prudential Directors, the charges, the smoothing process, if there is a guarantee and when the money is taken out. For more information about the PruFund range of Funds see Y our W it h- Profits Plan a gui de t o how w e ma na ge t he f und ( Pr uf und r a nge of f unds), reference WPGB0031. Alternatively you can refer to the guide Pr uf und- An introduction to the PruFund range of funds reference PFBS Prudential s Dynamic Portfolio/Focused Portfolio range. The multi-asset range includes five Dynamic Portfolios and two Dynamic Focused Portfolios. Each of these is a fund of funds, which mean that it invests in a collection of funds, that are themselves run by some of the leading investment managers in the country. The Dynamic Portfolios combine the expertise of PPMG, which has considerable experience of asset allocation and Morningstar a leading investment fund researcher. The Dynamic Focused Portfolios offer access to a range of funds, that use active and passive fund management approaches. These can help when planning for particular investment objectives. Funds included on the Flexible Retirement Plan are: Dynamic 0-30 portfolio / Dynamic Focused 0-30 portfolio Dynamic portfolio Dynamic portfolio / Dynamic Focused portfolio Dynamic portfolio Dynamic portfolio

5 The Prudential With- Profit funds. The Prudential With-Profit Funds are designed to spread the risk by investing in a range of different assets, managed by investment experts PPMG. The Funds aim to secure the highest total return over the long term (10+ years) while maintaining an acceptable level of risk and protecting policyholders. In addition, through the bonus process, Prudential continue to smooth some of the extreme ups and downs of short-term investment performance. For the externally managed funds the Prudential fund will invest in the fund managers own fund or collective investment scheme. Additional Fund Choices. Additional fund choices Distribution Income Funds. These funds can pay out a natural income based on what the underlying assets in the fund have earned (this can include dividends from shares, lease, payments from properties, interest from fixed interest holdings). Please see the Flexible Retirement Plan Key Features document for further information on withdrawing money from the plan. Information about the funds available on this product can be found in the Flexible Retirement Plan Fund Guide. To assist your clients in managing the level of risk, Prudential offer a pre-defined lifestyle option for both the Personal Pension and Income Drawdown options. Lifestyling aims to protect your clients investments as they move closer to taking their benefits. During the final 10 years in the run up to your clients selected retirement age (SRA), Prudential will make automatic monthly switches to gradually reposition the fund choice towards funds that are generally low risk. Personal Pension Lifestyle Options. Personal Pension lifestyle options can be selected when the plan is taken out or at any time during the term of the plan. It can also be cancelled or resumed immediately on request. This option does not apply to investments in With-Profits, PruFund Protected funds or the Self-Invested Fund. Over 10 years to SRA Your client decides their fund choices, or defaults to the Prudential Managed Pension Fund. Between 5-10 years to SRA Monthly phased switching takes place, from the funds chosen to the Prudential Fixed Interest Pension Fund. Less than 5 years Monthly phased switching takes place to hold 75% Prudential Fixed Interest Pension Fund and 25% Prudential Cash Pension Fund.

6 Income Drawdown lifestyle options For the income drawdown plan, Prudential offer three lifestyle options, these are; - Prudential With-Profits Pension Fund - Prudential M&G Corporate Bond Pension Fund - Prudential M&G Managed Growth Pension Fund When originally selecting an option your clients starting asset allocation will be based on their age. The income drawdown option cannot be selected if your clients are aged 74 or over, or within 10 years of their Anticipated Annuitisation Age (AAA). For more information on the lifestyle options available on the Flexible Retirement Plan, please view the short fund guide. Prudential s multi-asset team, Prudential Portfolio Management Group (PPMG), is one of the largest and most well-resourced in the UK. PPMG manages around 180 billion*across a growing range of highly competitive multi- asset investment solutions and annuities on behalf of Prudential UK and Europe. PPMG has great strength in depth with a team of around 80, including experienced investment professionals with expertise in capital market research, investment strategy design, liability management, alternative investments and portfolio management. *As at 31 December The value of an investment can go down as well as up and your client may not get back the amount originally invested. How can my client invest in Drawdown/Phased Drawdown? The Flexible Retirement Plan Drawdown option allows the investor to take a retirement income from their pension fund and continue to benefit from any investment growth on the remaining fund. Prudential s Flexible Retirement Plan allows benefits to be taken from age 55 or earlier if in ill health. Two Drawdown options are available: Capped Drawdown restricts the amount of income that can be withdrawn from the fund. (Available for customers already in Capped Drawdown elsewhere wishing to transfer into FRP/ Existing Capped Drawdown customers. Existing Capped Drawdown customers cannot add to this pot). Flexi-Access Drawdown No restrictions apply on the amount of income that can be withdrawn from the pension fund. Your client can choose to invest all of their fund in Drawdown immediately or phase the movement of the fund from the Personal Pension option to the Drawdown option.

7 The minimum amount that can be invested into the Drawdown option only is 25,000. The minimum transfer amount ( If transferring from an existing Drawdown Plan) is 18,750. If your client has an FRP Fund of 50,000 or more they can convert some of it into Drawdown in phases of 10,000 or more, to suit their needs, taking a tax-free cash sum of 25% of the amount moving into Drawdown each time. The money invested in the Drawdown option can be used to provide additional income. If your client has a fund value of less than 50,000 in FRP then the minimum amount that can be invested in the Drawdown option is 25,000. If 50,000 has been invested in FRP, the minimum amount that can be invested in the Drawdown option is 10,000. If the current fund value is less than 50,000 in FRP, then the minimum amount that can be invested in the Drawdown option is 25,000. For each Drawdown fund in the Flexible Retirement Plan, the maximum level of income that can be taken, based on the fund s value, must be recalculated on or near to the 3rd anniversary of the start date. This is in accordance with HM Revenue & Customs rules. Performance of the plan should be reviewed more frequently than this to give confidence about the level of income the fund is providing. From age 75, reviews are required every year. What are the Self - Invested Personal Pension (SIPP) Options? Plan holders can invest all or part of their plan in a Self -Invested Personal Pension by investing in the Self Invested Fund. The Self-Invested Fund options allow your client to invest in a wide range of assets types, other than Prudential funds. Different funds invest in different types of assets. Each fund has its own level of risk and potential growth. Usually funds with more potential for growth carry more risk. Once invested, two SIPP options are available, these are the Fund SIPP and the Full SIPP option. FundSIPP The FundSIPP options allows investment in up to 20 funds from the fund supermarket offered by Cofunds in the Self Invested Fund. The CoFunds fund supermarket has a range of around 1500 funds. If the FundSIPP option is chosen, Prudential apply an establishment fee of 150 and an Annual Administration fee of 200. The Full SIPP option allows investors to include a much wider range of assets in

8 Full SIPP the Self-Invested Fund, from an allowable range that includes shares/unit trusts & commercial property. If the Full SIPP option is chosen, Prudential apply an establishment fee of 300 and an Annual Administration fee of 425. SIPP charges There are a number of fixed charges that are related to the management of the SIPP. There are also variable charges that may be applicable depending on the type of investments held. SIPP charges may be higher than is the case for Personal Pensions & stakeholder plans, or where the size of the fund is relatively small i.e. under 50, Special care needs to be taken when planning to invest in commercial property, this is due to the fact it can take a long time to sell. If the monies are required to pay death benefits, then consider that if death benefits aren t paid within two years of notification, there is a tax charge. - If your client borrows money to invest the return on the growth this may not cover the cost of borrowing. - If there are fixed charges these will have a greater proportionate effect on smaller investments than they will on larger ones. If your client has chosen either SIPP option, Prudential will send them a statement about their Self-Invested Fund. They can also get an up-to-date valuation by calling the Prudential Customer Services Department on Prudential s Flexible Retirement Plan offers self-investment via Suffolk Life-an experienced and award- winning Self Invested Personal Pension (SIPP) provider. For more information on the SIPP options available on the Flexible Retirement Plan, please view the Prudential Flexible Retirement Plan, Key Features Document. What are the charges that will apply to my clients plan? The charges that will be applied to your clients Flexible Retirement Plan include: - Product charges Including Annual Management Charges and any charges for guarantees. - Adviser charges. Your clients personal illustration will show what charges they could pay. Annual Management Charges (AMC s). Annual Management Charge With Profits Fund. Annual Management Charge PruFund Every year Prudential take an Annual Management Charge (AMC) from each of the funds that have been invested in. This covers the cost of setting up your clients plan and managing the investment. This charge is taken as a percentage of the fund value. The management charge for the With-Profit funds depends on the performance of the fund, in particular the investment return and our expenses. The management charge for the PruFunds funds is taken by Prudential by deducting a percentage of the units every month. If your client has only been

9 Funds. With-Profits Fund Guarantee charge invested in a PruFund Fund for part of a month, Prudential still take a full month s charge. There are charges to pay for the guarantees the With-Profits Fund supports, although investors won t see the guarantee charge on their annual statement, due to the fact Prudential take it by making a small adjustment to regular and final bonuses. The total deduction for guarantee charges over the lifetime of the plan is not currently more than 2% of any payment made from the fund. Prudential will review the amount of the charge from time to time. PruFund Protected Funds - Guarantee charge [if applicable] Adviser charges This is a percentage rate agreed at the start of your guarantee, which is applied to the value of the guarantee units held, and is taken by monthly deduction from those guarantee units. Please refer to the document PruFund Range of Funds: Guarantee Options for more information. <Adviser to insert appropriate copy> Please review the Prudential Flexible Retirement Plan Fund Guide for further information on fund charges/investment expenses & additional costs such as trading, dealing costs and property expenses, that may be applicable: What discounts are available? Fund Size Discount. Discounts are available on the Annual Management Charge depending on the size of the fund. Any final bonus on MVR applicable to investments in the Prudential With- Profit Fund will be excluded from this calculation of the fund value. Prudential will apply any fund size discount or loyalty discount on a monthly basis. Fund size discounts don t apply to investments held under the Self-Invested Fund or the FRP Holding Account. The discounts shown below will apply to the whole of the investment, not just the portion above the threshold levels shown below. Fund Size Fund Size Discount from Annual Management Charge Less than 25,000 Nil 25,000-49, % 50,000-99, % 100, , % 250,000 and over 0.30% Loyalty Discount. Prudential also give a Loyalty discount depending on how long your clients are Invested in the plan. If both discounts apply to the plan, Prudential will add them together. Investment Period Less than 5 years Loyalty Discount from Annual Management Charge Nil

10 years 0.05% years 0.10% years 0.20% 20 years or more 0.25% While the Loyalty & Fund Size Discounts don t apply to investments in the Self- Invested Fund or FRP Holding Account, if investments are transferred out of the Self-Invested Fund and the money reinvested in other funds within the plan, the period of continuous investment includes the period invested in the Self Invested Fund. If your client dies before taking benefits from the Personal Pension Plan, Prudential will normally pay the money in the plan as a lump sum to the investors next of kin or nominated beneficiary. What are the Death Benefits associated with the Flexible Retirement Plan? If your client dies in Drawdown before age 75, Prudential will normally pay the remaining value of the fund at that time to their nominated beneficiaries free from tax. If they die aged 75 or over, their nominated beneficiaries can draw an income or lump sum from the fund at their marginal rate. Your client can nominate their beneficiaries in the application form or write to Prudential to change the nominated beneficiaries at any time. HM Revenue and Customs rules require any death benefit to be paid within two years of the date Prudential are notified of the death. If benefits cannot be paid within this timescale a tax charge may be applied on the death benefit. This is a particular risk if your client has chosen the SIPP option and the fund holds investments that take time to sell, such as UK commercial property. About Prudential Financial Strength. Prudential is one of the companies in the UK savings market with an established track record and well respected brand. Prudential is a financially strong company, demonstrated by the A+ rating from Standard & Poor s, an independent rating company for financial strength. (Source: Standard & Poor s as at April 2018). Company Size. Prudential plc is an international financial services group with significant operations in Asia, the US and the UK. Who serve over 26 million insurance customers and have 669 billion of assets under management (as at 31 December 2017). Award Winning Service. As well as offering a comprehensive suite of pension and retirement income products, Prudential offers an award-winning service and was awarded 5 Stars for service at the 2017 Financial Adviser Service Awards in both the Life and Pensions and Investments categories. Award Winning Online At the 2017 Financial Adviser Online Service Awards, Prudential won the

11 Support. consistent service excellence award a one off achievement for consistently high levels of online service performance. The above is based on our understanding, of current taxation, legislation and Revenue practice, all of which are liable to change without notice. The impact of taxation and any tax reliefs depends on individual circumstances.full Terms and Conditions of the Flexible Retirement Plan are available on request.