Bonus Cutting at Prudential

2003: In The Cut - Jane Campion

Financial planners generally are not terribly interested in the bonuses paid to investment managers, but we are concerned about Insurance companies providing with-profit investment products that seem to worsen every year. This time Prudential, perhaps the best known with-profit company has announced today that it is reducing its bonus payments (to investors). That said, they seem to be top of the pops for final total payouts when compared against their competitors.

Prudential are quick to point out that maturing policies in 2012 have increased in value against 12 months ago (though I would argue that this is merely meeting expectations), terminal bonuses remain relatively strong but the cuts have come in the form of the regular annual bonuses (reversionary bonsues) which have been reduced by 0.50% to around 2.50%-3.00%. Prudential estimate that £1bn of reversionary bonuses have been added with a further £1.1bn added as final bonuses (relative to maturing policies).

Prudential remain a strong company with a global presence and one that specialise in with-profits, in my opinion in 2012 remain market leading in this regard. As a relatively low risk form of investing this is about as traditional a financial services product that you can get, in 2012 with the much wider array of investment options, it is unlikely that most people will take out a new with-profits policy, which has longer-term implications for the with-profits product providers. That said, the traditional argument for with-profits of smoothing the volatility of the market is hard to ignore when over the last 10 years the Prudential with-profits fund has accumulated a return of 92.7% against the FTSE AllShare index of 59.5% over the same period. The story of the tortoise and the hare comes to mind.