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Last Updated: Tuesday, 21 February 2006, 09:59 GMT
Pru with-profits bonus maintained
Prudential headquarters
The Prudential runs the UK's biggest with-profits fund
Bonus rates on with-profits policies will be maintained this year, the Prudential has announced.

The firm, which runs the UK's biggest with-profits fund, said the fund had increased in value by 20% over the past year and is now worth 83bn.

As a result, all policies maturing in 2006 would see final payouts increase, the group added.

It has 4.5 million policyholders who rely on the fund's performance for their savings, pensions and endowments.

This excellent performance should make those who have doubted with-profits as an investment method think again
Roger Ramsden, Prudential

The final value of with-profits funds, which are designed to smooth out volatility, hinges on bonus rates.

The group said that all Prudential mortgage endowments maturing this year will meet their repayment target.

As for the future, the group added that fewer endowment policyholders were now headed for a shortfall.

"Savers are enjoying the returns we are providing as a reward for maintaining their investments through the turbulence and volatility of stockmarkets at the start of the decade," Roger Ramsden, Prudential executive director, said.

"This excellent performance should make those who have doubted with-profits as an investment method think again," Mr Ramsden added.

2005: + 20%
2004: + 13.4%
2003: + 16.5 %
2002: -8.1%
2001: -3.5%
Source: Prudential


The underlying concept behind a with-profits fund is its in-built safety mechanism known as "smoothing".

Smoothing means that in years of good investment growth companies should hold back profits and use them to top up bonuses in years when economic conditions are harsher.

But stock market falls in 2001 and 2002 forced many firms to trim policy values and impose exit penalties.

However, since March 2003 the UK stockmarket has recovered. As a result some with-profits providers have been able to boost policy values once again.

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