What is it about the offshore bond product Prudential International offers that is currently attracting such strong demand?
Our offshore bond product has proved popular with financial advisers and their clients in recent years.
In 2014, we recorded strong sales growth across all the territories and saw a 44% growth in sales.
Prudential has built its investment strength on its ability to manage multi-asset funds.
The growth for Prudential International has been driven by the success and demand from the adviser community and their clients for our PruFund range of funds.
Using a unique smoothing process, these funds aim to protect investors against some of the ups and downs of the markets, and provide less volatile and more stable returns over the medium to long term.
Can you explain how the smoothing of returns works?
The process on our PruFund range of funds aims to reduce the impact of short-term market movements to help smooth investment returns.
This is in addition to the smoothing provided by the diverse asset mix that is held within the PruFund Range of funds.
We use the terms ‘smoothed’ and ‘unsmoothed’ when referring to the unit prices of each fund.
The unit price is known as the smoothed price, which increases daily in line with the expected growth rate.
The unsmoothed price is the value of the investments in each fund, divided by the total number of units in that fund.
The difference between these prices is checked daily.
If the unsmoothed price differs from the smoothed price by 10% or more, the smoothed price will be adjusted immediately to reduce the difference to 2.5%.
At the end of the quarter, if the unsmoothed price differs from the smoothed price by 5% or more, either above or below, then the smoothed price is moved 50% of the way to the unsmoothed price.
What has been happening to your distribution base that has supported this growth?
The vast majority of sales of our offshore bond product are through the financial adviser community.
The number of financial advisers who supported Prudential International increased by 25% in 2014.
Do you expect there will be any changes to your distribution model during the next few years?
We expect future growth to continue by widening the number of advisers who do business with us across all territories.
We recognise that advisers are increasingly using platforms as part of their advice model.
With the recent launch of our platform-enabled Prudential Onshore Portfolio Bond, we are in a strong position to increase this base further.
What are the main types of clients the offshore bond product is appropriate for typically, and why?
Our client base can be broken down into two distinct groups:
- Tax planners: this group of clients typically uses offshore bonds for inheritance tax planning. Offshore bonds sit nicely inside a trust as the trustees don’t have to do annual returns unless there have been chargeable events. They provide the settlor with an income in the form of regular withdrawals and can be structured so the bond can be maintained by the trustees after the death of the settlor for generational planning.
- Retirement planners: Offshore bonds can be used to fund retirement. The pensions annual allowance is just over £40,000 per individual. The lifetime allowance has been reduced to £1.25m. Many people who are hitting these caps still have money they want to earmark for retirement.
In essence, offshore bond clients can get money out of offshore bonds when they reach retirement using the five per cent tax deferred allowance.
By spending the offshore bond money they are reducing their inheritance tax bill because pension funds will normally be out with the estate for inheritance tax.
