Prudential Retirement Account

A guide to saving into your pension

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An introduction to the Prudential Retirement AccountThe Prudential Retirement Account has been designed to meet the needs of today’s generation planning for their retirement. A generation which is increasingly retiring in a very different way from that of their parents, and as such are looking for a much greater level of flexibility.

The Retirement Account gives that flexibility. It allows you to invest tax-efficiently in your pension and provides many flexible options to take your pension benefits.

Welcome

This brochure focuses on the main features of saving into a pension through the Prudential Retirement Account. For more information on taking flexible cash or income from the Prudential Retirement Account, please refer to ‘Prudential Retirement Account – A guide to drawdown’.

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Retirement has changed…The way people are retiring is changing. More people are continuing to work later into life and taking up new hobbies and challenges in retirement. Others are adopting a phased approach to retirement – perhaps choosing to work part-time as part of their retirement planning.

Also, people are, generally, living longer than the previous generation – so their money needs to last longer. Additionally, their income requirements may change significantly over that time.

…and the rules around pensions have changedAnd in April 2015 pension freedoms changed the way you can take money from your pension. This legislation gave people much more flexibility and options with their pension and income.

The projected average lifespan for men and women in the UK, and estimated time in retirement assuming a retirement age of 65.

Source: ons.gov.uk, December 2015

20 30 40 50 60 70 80 90 100

Men

Women

Working22 years average

24 years average

Age

Retired

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Against this backdrop, Prudential has introduced a pension which embraces these flexibilities – The Prudential Retirement Account.

This new-style pension allows you to save for your retirement and take flexible cash or income – all within one plan.

A pension that provides the flexibility you need

At a glance• You can make payments into your pension in a number of ways and from

different sources

• You can start to withdraw your money at any time from age 55, allowing you to:

− withdraw a regular income, take lump sums or a combination of both

− vary the level of income you take to help minimise the tax you pay

− save and withdraw money at the same time (although the amount you can save may be restricted)

• Choose which funds to invest your money in (and change them as your needs change) including:

− PruFund range of funds

− Dynamic Portfolios and Dynamic Focused Portfolios

− A wide range of external funds and Fund Managers

− Invest directly in exchange-listed stocks and shares

• Option of a Capital or Minimum Income Guarantee on selected PruFund investments

• Keep your options open – no-one can predict what will happen in the future, so you have the reassurance of knowing your options remain open with the Retirement Account

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There are two core elements at the heart of the Retirement Account – the diagram below outlines how it works:

1. Pension Savings Account (Pension) 2. Pension Income Account (Drawdown)

How it works

This brochure is based on our understanding of current taxation, legislation and HM Revenue & Customs practice and limits, all of which are subject to change without notice. The impact of taxation (and any tax relief) depends on individual circumstances.

Please remember the value of investments can go down as well as up and you may not get back the amount you invested.

20 30 40 50 60 70 80 90 100

Men

Women

Working

22 years average

24 years average

Retired

1. Pension Savings Account(Pension)

£100,000

Withdraw some or all of your money straight from your pension

Up to £25,000tax-free

Move money into the PensionIncomeAccount

£75,000subject to income tax

Money invested in thePrudential Retirement Account

Money withdrawn from the Retirement Account

Key

2. Pension Income Account (Drawdown)

£75,000

Up to £25,000tax-free

£1,250into your

pension pot Actual cost to

you £1,000

Tax relief£250

£1,250into your

pension pot Initial cost to

you £1,000

And you canclaim a further£250 tax relief

Tax relief£250

Example based on basic rate tax payerAn investment of £1,250 only costs you £1,000

Example based on higher rate tax payerAn investment of £1,250 only costs you £1,000 and you can claim back up to an extra £250

remains invested and can be

withdrawn as taxable amounts

when needed

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1. Pension Savings Account (Pension)The Pension Savings Account helps you to save for your retirement in a tax-efficient way. It allows you to save through your own contributions, contributions from employers and third parties and transfers from other pensions.

Investing in this pension gives your money the opportunity to benefit in two ways:

(i) Tax ReliefThe money you or a third party contribute will benefit from tax relief. For example, investing £100 in your pension only costs you £80 as we apply for basic rate tax relief for you from HM Revenue & Customs. If you are a higher or additional rate tax payer you may be able to claim even more back.

However, tax relief will not be added to employer contributions or transfers from other pensions.

(ii) Potential for investment growthYour money has the opportunity to benefit from potential investment growth. Your adviser will recommend where to invest your contributions, choosing from an extensive range designed to meet a variety of needs and attitudes to risk.

The flexibility and control offered also means that once you’ve made your investment choices, you can change them in the future to fit your changing needs.

How it works (continued)

As well as saving into the Pension Savings Account, from age 55 you can also withdraw some or all of your money directly from it as cash lump sums. The government refers to this as Uncrystallised Funds Pension Lump Sums (UFPLS).

Up to 25% of each amount you withdraw as a UFPLS is paid as a tax-free amount and the remaining 75% is added to your other income and taxed accordingly, which could push you into a higher tax bracket for that year. .

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1. Taking your tax-free cashYou can take up to 25% of each amount you move tax-free and then take a taxable income from the rest.

There are various ways to do this including moving all your money at once, in regular phases or on an ad-hoc basis.

2. Flexible ways to withdraw your moneyYou have the flexibility to take as much or as little of your money as a regular income, as lump sums or a combination of both.

Having this flexibility allows you to manage the tax you pay as you can plan your income withdrawals to keep you within a lower tax band.

3. Offering a wide range of investment funds to help grow your moneyAny money not withdrawn remains invested in your chosen funds. This gives you the opportunity to potentially benefit from investment growth.

4. Leave money to your loved onesAny money remaining upon your death can be passed onto your loved ones, usually free from Inheritance Tax and if you are under 75, it may be free from income tax too.

2. Pension Income Account (Drawdown)From age 55 you have the option to move some or all of your money into drawdown. The next sections of this guide will explain four of the main benefits of doing this.

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The Prudential Retirement Account helps in all of these areas:

1. Providing flexible ways to pay in to your Prudential Retirement Account

2. Your contributions increase in value through tax relief

3. Offering a wide range of investments to help potentially grow your money

The following pages will give you more details about these points.

The Prudential Retirement Account provides a flexible, tax-efficient way to save for your retirement

The current freedoms give you more options for retirement. However, the amount available in retirement is determined by how much you have in your pension.

The value of your pension isn’t only impacted by how much is paid in – although that is extremely important. There are other important considerations such as the tax relief you receive and the performance of the funds you choose, which could all contribute to the size of pension you will ultimately have.

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You can make regular contributions for ease and convenienceYou can choose to make regular monthly or annual contributions into your Retirement Account, which can help build your investment over time.

Employers can also pay into your accountEmployers can pay their contributions into the Retirement Account. However, the Retirement Account is not suitable for auto-enrolment purposes and it is not a qualifying scheme.

You can choose to increase your Prudential Retirement Account with lump sum contributionsIn addition to regular contributions, you can pay in lump sums at any time to increase your investment. You may have money elsewhere which you feel isn’t working hard for you, or you receive a lump sum, for example through an inheritance or maturing investment.

You can opt for automatic increases to your contributions What may seem like a reasonable amount to save today, may not be enough in 5 or 10 years’ time. With the Retirement Account you can opt for your regular payments to automatically increase each year. You can choose for your increases to match either the Consumer Prices Index or to increase at a fixed rate. These automatic increases, known as indexation, could help contributions keep pace with inflation or grow alongside your earnings.

You can choose to transfer other pensions you haveYou can transfer pension plans you have elsewhere into your Prudential Retirement Account. Perhaps you are in an older-style pension with little flexibility and choice or you want to have your money in one place.

However, your existing pension arrangements may have valuable benefits which could be lost in a transfer and so you must give this careful consideration.

1. Providing flexible ways to pay into the Prudential Retirement Account

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2. Your contributions increase in value through basic rate tax relief

If you are eligible, your contributions automatically benefit from basic rate tax relief when you pay into your Retirement Account. Over time these tax benefits can contribute significantly to the value of your pension savings.

An investment of £1,250 only costs you £1,000

If you are a basic rate tax payer, for every £1,000 contributed an extra £250 would be added to your Retirement Account as soon as it is paid in.

Example based on a basic rate tax payer

20 30 40 50 60 70 80 90 100

Men

Women

Working

23 years average

25 years average

Retired

1. Pension (Pension Savings Account)

£100,000

Withdraw some or all of your money as an UFPLS

Up to £25,000tax-free amount

Money remains invested in Flexi-Access Drawdown

£75,000subject to income tax

The Prudential Retirement Account

Money withdrawn from the Retirement Account

Key

2. Flexi-Access Drawdown(Pension Income Account)

£75,000

Up to £25,000tax-free cash

£1,250into your

pension pot Actual cost to

you £1,000

Tax relief£250

£1,250into your

pension pot Initial cost to

you £1,000

And you canclaim a further£250 tax relief

Tax relief£250

Example based on basic rate tax payerAn investment of £1,250 only costs you £1,000

Example based on higher rate tax payerAn investment of £1,250 only costs you £1,000 and you can claim back up to an extra £250

Take taxable withdrawals

when needed

Example based on a higher rate tax payer

20 30 40 50 60 70 80 90 100

Men

Women

Working

23 years average

25 years average

Retired

1. Pension (Pension Savings Account)

£100,000

Withdraw some or all of your money as an UFPLS

Up to £25,000tax-free amount

Money remains invested in Flexi-Access Drawdown

£75,000subject to income tax

The Prudential Retirement Account

Money withdrawn from the Retirement Account

Key

2. Flexi-Access Drawdown(Pension Income Account)

£75,000

Up to £25,000tax-free cash

£1,250into your

pension pot Actual cost to

you £1,000

Tax relief£250

£1,250into your

pension pot Initial cost to

you £1,000

And you canclaim a further£250 tax relief

Tax relief£250

Example based on basic rate tax payerAn investment of £1,250 only costs you £1,000

Example based on higher rate tax payerAn investment of £1,250 only costs you £1,000 and you can claim back up to an extra £250

Take taxable withdrawals

when needed

An investment of £1,250 only costs you £1,000 and you can claim back up to an extra £250

This means that for every £1,000 you pay in as a higher rate tax payer, you could receive a further £250. You should claim this additional amount via your self-assessment tax return as it is not automatically paid into your pension.

Another benefit is that Prudential automatically adds your basic rate tax relief to your Retirement Account in advance of receipt of the money from HM Revenue & Customs. This means you have the tax relief invested right from the start.

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3. Offering a wide range of investment funds to help grow your money

The amount paid in and the tax benefits the government provides both contribute to the size of your pension savings. However, these are not the only factors to determine the value of your pension.

Where it is invested can have a significant impact on the value of your pension.

Please remember the value of investments can go down as well as up and you may not get back the amount you invested.

Risk vs RewardThere is a link between the amount of risk an investor is prepared to take, and the potential rewards they seek to gain. Although money may be more secure in a lower-risk investment, it is also unlikely to grow significantly. Whereas investing in a higher-risk investment, means the potential rewards may be greater but it is less secure. The key to successful investing is to find the balance between potential risk and reward that is right for you.

Funds available to invest inWe offer a wide range of investment options, including the PruFund range of funds, Dynamic Portfolios and Dynamic Focused Portfolios, as well as hundreds of external funds and other investment choices.

How your adviser can helpYour adviser will help you to find the balance between risk and reward and will recommend investments suitable to your attitude to risk. Many advisers will also offer to review your needs and your attitude to risk over time and, if they have changed, will adjust your investments accordingly.

For example, someone who is saving for their retirement may be willing to take more risk to help build their savings over a period of time. However, once retired that same person, may be less willing to take as much risk as they are relying on their money to provide an income.

Therefore, it is crucial that your money is invested in the most appropriate funds for you.

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A wide range of investment options available in the Prudential Retirement Account:

PruFundThe PruFund range of funds invest in our With-Profits Fund and includes a choice of PruFund Growth, PruFund Cautious, and our four Risk Managed PruFunds.

Collective Funds

Prudential Dynamic Portfolios – five risk-managed multi-asset funds which use selected Morningstar (an independent rating agency) ‘rated’ funds.

Prudential Dynamic Focused Portfolios – five risk-managed multi-asset funds which use active and passive management approaches.

Hundreds of other Collective funds – access to some of the most popular fund managers and investment companies available today.

Other investment choices

For even more choice, we also give direct access to stock exchange investment options such as UK stocks and shares, investment trusts and exchange-traded funds provided by a regulated third party called Stocktrade.

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PruFund range of funds – designed to smooth some investment volatility

The PruFund funds are a range of multi-asset funds which invest in our With-Profits Fund and are designed to suit different attitudes to risk. They aim to grow your money while giving you a smoothed investment experience.

What is smoothing?The smoothing process is intended to smooth some of the market volatility associated with the underlying assets.

This means that you would not benefit from the full upside of market rises, or suffer from the full downside of market falls, which can help to provide a more stable performance.

The PruFund range of funds also offer:• A well diversified range of funds

• A choice of funds to suit different attitudes to risk

• Economies of scale – investment costs are spread over many investors

• Active management by skilled asset allocation experts – The Prudential Portfolio Management Group Limited

For more information on our smoothing process please see the ‘Prudential Retirement Account – Your With-Profits Plan – A Guide To How We Manage The Fund (PruFund range of funds)’.

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Dynamic Portfolios and Dynamic Focused Portfolios

The Dynamic Portfolio funds and Dynamic Focused Portfolio funds are a range of multi-asset Open Ended Investment Companies (OEICs) funds designed to meet your attitude to risk.

Dynamic PortfoliosDynamic Portfolios are funds which are essentially ready-made, actively managed portfolios giving you access to a range of leading investment managers from outside of Prudential.

When you invest in these funds, the value of any units bought is directly linked to the performance of the investments in the funds.

This means these aren’t smoothed funds and the funds’ value is likely to go up and down on a daily basis.

Dynamic Focused PortfoliosThe Dynamic Focused Portfolios are similar to the Dynamic Portfolios but they invest in funds that are actively and passively managed.

Actively managed funds are where fund managers make decisions about where to invest the money. Whereas passively managed funds are set up to track the performance of a share index.

By combining both actively and passively managed funds, investors benefit from specialist investment expertise and cost effective access to mainstream equity markets.

When you invest in these funds, the value of any units bought is directly linked to the performance of the funds.

The LF Prudential OEIC Funds are provided by Link Fund Solutions Limited, who is responsible for all the regulatory and legal aspects of the OEIC Funds and the provision of all customer services.

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A broad array of other investment options are available

External Collective FundsYou have access to hundreds of collective funds from a wide variety of fund management groups. This allows you to choose funds with different managers that are managed in different ways.

When you invest in these funds the value of any units bought is directly linked to the performance of the investments in the funds.

This means these aren’t smoothed funds and the funds’ value is likely to go up and down on a daily basis.

Other optionsYou also have the option to invest in stocks and shares through a stockbroker called Stocktrade, who will charge for your investment.

It gives you access to more specialist investment options including UK stocks and shares, Exchange-traded Funds, and Investment Trusts.

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Capital and Minimum Income Guarantee options

There are guarantees available on certain PruFunds that allow you to secure the value of some or all of your investment or provide an income for life (at an additional cost).

The Capital GuaranteeWhen you invest in certain PruFunds you have the option of a 10-15 year guarantee. This means you can secure the value of some or all of your capital (you can choose how much you want to guarantee) at a date 10-15 years from when you choose the guarantee.

If the value of your investment is below the secured value your fund will be increased to the secured amount. This provides a level of protection against market volatility and crashes.

The Minimum Income Guarantee It may be important to have a safety net of a guaranteed income that is paid for the rest of your life.

You have the option to be paid at least a minimum amount of annual income from some or all of your investment for the rest of your life – no matter how long you live.

If the fund you are invested in performs well your income could go up, but crucially if it doesn’t perform well your income will never drop below your guaranteed income amount.

You have the flexibility to change your guarantees to suit your needsWith both the Capital and the Minimum Income Guarantee options, you can guarantee different amounts at different times to suit your needs. For example, you could choose the Capital Guarantee on £50,000 for 10 years and then the following year you decide you want to guarantee a further £100,000 for 12 years after that date.

You also have the option to cancel a guarantee at any time you choose.

Please note, if you make a withdrawal from your Capital Guarantee, withdraw more than your Minimum Income Guarantee amount or switch some of the units invested in your guaranteed amount, your Capital or Minimum Income Guarantee would be reduced. And, if you withdraw or switch all of the units then the guarantee will end.

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How you can take your money from the Retirement Account

Once you reach age 55 you can withdraw money from the Retirement Account in a number of ways

Option 1 – Withdraw money directly from your Pension Savings AccountYou can withdraw some or all of your funds directly from your Pension Savings Account (this is known as an Uncrystallised Funds Pension Lump Sum).

You can do this as often as you like (provided you have Lifetime Allowance available – your adviser will explain what this is) until you have withdrawn all of your money. 25% of each amount withdrawn is usually tax-free and the rest is added to any income you may have and taxed accordingly.

Option 2 – Move your money into the Pension Income Account and take up to 25% tax-freeThis is known as drawdown. This gives you the flexibility to take money out when you need it, as flexible cash or income or a combination of both. Please remember you need to take your tax-free cash at the point you move your money into drawdown – you can’t take it later.

There are other benefits to drawdown as set out on the next page.

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Taking your money using drawdown

Taking your tax-free cashThere are different ways to take your tax-free cash. You can:

• Take the full amount –You can move all your money into the Pension Income Account and take up to 25% tax-free; the balance remains invested and can be withdrawn when you need it.

• Take a partial amount – Move some of your money into the Pension Income Account and take up to 25% of this amount tax-free. You may want to do this if you need an income but don’t need all of your tax-free cash immediately.

• Take a phased amount – Move your money into the Pension Income Account in regular phases and take up to 25% of each amount tax-free. You may want to do this if you don’t need all your tax-free cash at once but there could be a specific regular outlay you would like to use it for.

Flexible ways to withdraw your moneyAfter you have taken your tax-free cash you can choose to leave the rest invested or take an income in the following ways:

• flexible cash when you need it

• a regular income

• or a combination of both.

The flexibility of income gives you an element of control over the income tax you pay and allows you to adjust your income to suit your changing needs throughout your retirement.

A wide range of investment funds to help grow your moneyThe Pension Income Account offers the same fund choice as the Pension Savings Account, so you and your adviser can continue to invest in funds matched to your attitude to risk throughout your retirement.

Leave your money to your loved onesAnother advantage is that any money left on your death can be passed to your loved ones free from Inheritance Tax.

And, if you die before age 75 your money is usually passed on free from income tax.

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Other benefits of The Prudential Retirement Account

Withdraw money and continue to benefit from tax relief on pension contributionsOne of the most important benefits of paying into a pension is the tax relief received. You can continue to make pension contributions even if you have moved your money into drawdown.

If you do flexibly access your income (over and above your tax-free amount), the amount that you can contribute to your pension each year and receive tax relief on is reduced.

You can transfer-in existing Capped Drawdown plansIf you have an existing Capped Drawdown plan with either Prudential or another insurance company, you have the option to transfer it into your Retirement Account.

Access your savings before age 55 if you become illIf you become ill and can no longer work, you may be entitled to take your benefits at an earlier age. If you become terminally ill with less than 12 months to live, you may be able to access the money in your Retirement Account as a lump sum. There are certain conditions to accessing your money this way, which your adviser will explain.

Your options remain openYou do not know what will happen in the future, so it is good to know you have the flexibility to change your retirement products, including the option to buy an annuity or transfer to another provider in the future.

You can monitor the progress of your Retirement Account at any timeYou can register for secure online access to our customer website MyPru. This allows you to see how much your Prudential Retirement Account is worth, what the growth has been, estimated retirement income levels and your options for taking income. Register for MyPru at pru.co.uk

Further information

For further details on the Prudential Retirement Account please speak to your adviser.

We recommend you use Pension Wise, a free, impartial guidance service offered by the Government to help you understand your retirement options. You can speak to them on 0800 280 8880, and book an appointment to meet someone in person. And, you can visit pensionwise.gov.uk/shop-around.

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“Prudential” is a trading name of The Prudential Assurance Company Limited, which is registered in England and Wales. This name is also used by other companies within the Prudential Group. Registered Office at Laurence Pountney Hill, London EC4R 0HH. Registered number 15454. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority.

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