Glossary of Bonus Declaration Terms

PAC was founded as a loans and life assurance company in 1848. Its principal activities today are with-profits and non-profit life and pensions insurance business.

PIA is a wholly owned subsidiary of PAC. All PIA with‑profits Plans are backed by PAC through a reinsurance arrangement.

M&G plc is the ultimate parent company of PAC. M&G plc also owns, directly or indirectly, various investment management companies including M&G Investment Management Limited and M&G Real Estate Limited. A large part of PAC’s assets are managed by these companies.

ELAS was an assurance company. On 31 December 2007, ELAS transferred its with-profits annuities business to PAC.

In relation to letting you know about our 2026 bonus declaration, we use the term savings and investment customers to refer to our with-profits life and pensions customers, and our with-profits annuity customers.

It does not include schemes/trustees invested in our new Prudential Guaranteed Income Plan or customers investing in our PruFund fund range.

The Prudential Guaranteed Income Plan is a new with-profits product launched in the With-Profits Fund in 2025, primarily designed for scheme members phasing into, or in the early years of, retirement looking for a guaranteed income, a guaranteed lump sum, or a combination of both, without needing a lifelong annuity commitment. It is the first of a range of solutions focused on providing guaranteed income and/or lump sums. It is available to schemes/trustees, including Retirement Account, as a Trustee Investment Plan (TIP) and can only be bought through an adviser.

The With-Profits Fund is a pooled investment fund where customers’ money is used to invest in a global portfolio of assets and they share in the profits that the Fund makes.

For our savings and investment customers, together with customers investing in our hugely successful PruFund fund range, the Fund invests in a wide range of different asset classes and its managers aim to secure the highest total return for the Fund (after any tax and investment expenses) while maintaining an acceptable level of risk and protecting our customers.

The Prudential Guaranteed Income Plan is backed by a diversified fixed income investment strategy within the Fund. This ensures that we can provide guarantees in the form of a regular income payable over the term of the Plan and/or a lump sum payable at the end of the term. Plus, we’ll be able to pay a little more than the guaranteed regular income and/or guaranteed lump sum if the fixed income assets backing the Prudential Guaranteed Income Plan outperform what is required to support those guarantees.

We aim to ensure that our savings and investment customers and schemes/trustees invested in our Prudential Guaranteed Income Plan receive their fair share of the profits of our Fund through bonuses (and, for our PruFund customers, through Expected Growth Rates (EGRs) and Unit Price Adjustments (UPAs)).

For our savings and investment customers, we use our bonus process to smooth some of the highs and lows of investment performance.

For our savings and investment customers, our With-Profits Fund aims to smooth some of the highs and lows of investment performance. We achieve this by holding back some of the investment returns in good years with the aim of using this to support bonus rates in years when investment returns are lower.

Our With-Profits Fund aims to smooth some of the highs and lows of investment performance for our savings and investment customers. We achieve this by holding back some of the investment returns in good years (generating a smoothing profit for the Fund), with the aim of using these profits to support bonus rates in years when investment returns are lower (and smoothing losses would be generated). The smoothing profits and losses for different groups of customers are monitored through different Bonus Smoothing Accounts (BSAs).

It is common for with-profits funds to have more money than they expect to pay out to customers, which is called an Inherited Estate. Our With-Profits Fund’s Inherited Estate has been built up over many years from a number of sources. It supports current and future customers and helps us look after their long-term interests, such as providing more flexibility for our investments and allowing us to hold back some money in the good years to pay out more in the bad years (a process known as “smoothing”). It also allows us to write new with-profits business.

Smoothed funds are investment products designed to protect you from some of the short-term ups and downs of market performance. Instead of exposing you to daily volatility, smoothed funds aim to provide more stable performance over the medium to long term (usually up to 15 years) by ‘smoothing’ investment returns.

Unsmoothed funds are investment products that can, because of the way they are designed, expose you to the daily volatility of the funds underlying assets, without the protection of smoothing some of the short-term ups and downs of market performance.

It’s a regulatory requirement for us to calculate a regulatory solvency ratio for the With-Profits Fund. The higher the regulatory solvency ratio, the stronger the Fund is. Based on our regulatory solvency ratio, plus other assessments we perform, we consider our With-Profits Fund to be very strong.

We aim to ensure that you receive a fair share of the profits of our With-Profits Fund through bonuses. Regular Bonus is one of the types of bonus that we use.

When we decide Regular Bonus rates, the main thing we consider is the return we expect our investments to earn in the future. We hold back some of this return, with the aim of paying a proportion of the proceeds as Final Bonus, Smoothed Return or Additional Bonus (depending on your type of Plan). By doing this across our with-profits savings and investment products we aim to keep the cost of all guaranteed benefits at a sustainable level, in order to maintain investment flexibility and to protect our customers.

Not applicable to Income Choice Annuity (ICA) customers.

Your guaranteed benefits depend on your type of Plan. For our with-profits annuity Plans, the guaranteed benefits are generally defined by the level of our Minimum Income Guarantee, Secure Level or Guaranteed Annuity (depending on the type of with-profits annuity Plan). For other Plans, the guaranteed benefits are an amount payable on death, retirement or maturity (depending on the type of Plan) and are impacted by the level of Regular Bonus declared.

We don't guarantee that a Regular Bonus will be added each year, but once added to your Plan, it increases the level of your guaranteed benefits and it can only be removed in certain circumstances, for example if you decide to take money out of your investments or savings Plan early. For our with-profits annuity Plans, once added to your Plan, it cannot be removed.

We aim to ensure that you receive a fair share of the profits of our With-Profits Fund through bonuses. Additional Bonus is one of the types of bonus that we use.

We calculate Additional Bonus rates with the aim that you receive a fair share of the profits of the With-Profits Fund over the lifetime of your Plan. This will take account of, for example, charges and the effects of smoothing. Additional Bonus may be reduced or removed and isn’t guaranteed.

Only applicable to With-Profits Pension Annuity customers.

We aim to ensure that you receive a fair share of the profits of our With-Profits Fund through the Smoothed Return.

We calculate Smoothed Returns with the aim that you receive a fair share of the profits of the With-Profits Fund over the lifetime of your Plan. This will take account of, for example, charges and the effects of smoothing. The Smoothed Return can be changed at any time and it’s not guaranteed until it becomes payable at the next Plan anniversary.

Only applicable to Income Choice Annuity (ICA) customers. 

We aim to ensure that you receive a fair share of the profits earned on the With-Profits Fund since the transfer of your Plan to Prudential on 31 December 2007. We do this by the combination of ORRs and Interim Rate of Return (IRRs).

The ORR is applied on your Plan anniversary falling on or after 1 April. The ORR generally reflects the investment performance of the With-Profits Fund (after allowing for smoothing and charges) in the previous calendar year. The same ORR applies to all Plans.

Only applicable to with-profits annuity customers who transferred across from ELAS.

We aim to ensure that you receive a fair share of the profits earned on the With-Profits Fund since the transfer of your Plan to Prudential on 31 December 2007. We do this by the combination of Overall Rate of Return (ORR) and IRRs.

The IRR is applied on your Plan anniversary and is generally intended to give credit for the expected future investment performance of the With-Profits Fund from 1 January until your Plan anniversary falling before the 31 March of the next year, after allowing for smoothing and charges. When we set the IRR, the main thing we consider is the return we expect our investments to earn in the future.

Only applicable to with-profits annuity customers who transferred across from ELAS.

We aim to pay you a Final Bonus when you take money out of the With-Profits Fund. We calculate Final Bonus with the aim that the total return on your Plan represents a fair share of the profits of the With-Profits Fund over the lifetime of your investment. This will take account of, for example:

• charges
• the effects of smoothing and
• any applicable tax. 

Final Bonus may vary and isn’t guaranteed. For example, we might not pay a Final Bonus if the investment return has been low over the lifetime of your investment.

Not applicable to Income Choice Annuity (ICA), with-profits annuity customers who transferred across from ELAS and With-Profits Pension Annuity customers.

The level of money in the Inherited Estate is carefully checked each year and, as was the case in 2020, 2022, 2023 and 2024, if it is determined that we have more than we need, then we may decide it is fair to share some of it with some of our customers, as a windfall.

Depending on the product, additional money is shared as part of Final Bonus, Smoothed Return or Additional Bonus and so, where applicable, these include additional money we shared with some of our with-profits customers as part of previous years’ Bonus Declarations. Our Final Bonus, Smoothed Return and Additional Bonus (depending on your type of Plan) isn’t guaranteed. To protect the interests of all customers in the Fund, we may need to take back this additional money in the future. There’s currently no expectation this will happen, and we would only expect to consider it in very unusual circumstances, such as a significant market crash.

Not applicable to with-profits annuity customers who transferred across from ELAS.

For some Plans we can apply a Market Value Reduction (MVR). If required, these are applied if you decide to take money out of your Plan early, for example before your selected retirement date for a pensions product. MVRs act to ensure you get your fair share of the profits of the With-Profits Fund over the lifetime of your investment, and help to protect the interests of all our customers in the Fund.

The guaranteed benefits for the Prudential Guaranteed Income Plan can be a regular income payable each year and/or a lump sum payable at the end of the term.

The Prudential Guaranteed Income Plan is backed by a diversified fixed income investment strategy within our With-Profits Fund. We calculate the guaranteed benefits (both the regular income payable each year and/or a lump sum payable at the end of the term) payable from the Plan based on how we expect the fixed income assets to perform over the term. We call this expectation the Guaranteed Return – it’s shown in our quote and is set considering investment conditions at that time. The Guaranteed Return is fixed and does not change over the term.

The Earned Return is the total of the Guaranteed Return and any bonus we declare for the Plan. The bonus reflects how the fixed income assets backing the Prudential Guaranteed Income Plan have performed compared with our expectations at the start of the Plan. Because the performance of the assets can change over time, the bonus may change each year and the Earned Return will be updated over the Plan’s lifetime.

Any bonus reflects how the fixed income assets backing the Prudential Guaranteed Income Plan within our With-Profits Fund have performed. Because the performance of the fixed income assets can change over time, the bonus may change each year and is not guaranteed. A declared bonus can be changed at any time although the change will only impact Plans that have a Plan anniversary between the date we make the change and the end of the bonus year (5 April) in which the change is made.

A cumulative return is the total return earned over the period, so, for example, a cumulative return for 10 years represents how much the Fund returned in total over the 10 years.

An annualised return is the average return earned each year over the period, so, for example, an annualised return for 10 years represents how much the Fund returned, on average, in each of those individual 10 years.

For some products, such as pension plans and with-profits annuities, investment income and gains on the Fund are not subject to UK taxation, and as such they are credited with a gross of (or before) tax return.

For some products, such as endowments and bonds, investment income and gains on the Fund are subject to UK taxation, and as such they are credited with a net of (or after) tax return.

At the start of your Plan you would have selected an Anticipated Bonus Rate (ABR). Your level of income depends on the ABR you selected. The higher the chosen ABR then

• the higher your initial income, but
• the lower the potential for future increases in your income and
• the greater the risk of falls in your income over time.

You may have also changed your ABR since your Plan started.

Your future level of income depends on the level of Regular Bonus and Additional Bonus we declare relative to your current ABR. The combination of these bonuses represents your fair share of the profits, after charges and smoothing, earned on the With-Profits Fund since the start of your Plan.

Only applicable to With-Profits Pension Annuity customers.

At the start of your Plan you would have selected an Anticipated Bonus Rate (ABR). Some customers also have a Guaranteed Interest Rate (GIR). Your level of income at the start of your Plan depended on your ABR and whether you had a GIR. The higher your combined ABR and GIR, then:

• the higher your initial income,.
• the lower the potential for future increases in income, and
• the greater the risk of falls in your income over time.

Your future level of income depends on the combination of:

• The level of your Total Annuity income, which depends on the Overall Rate of Return (ORR) and Interim Rate of Return (IRR) we declare relative to your ABR and any GIR.
• The level of your Guaranteed Annuity income, which depends on the level of the Regular Bonus we declare relative to your ABR.

The combination of the ORRs and IRRs we declare represent your fair share of the profits, after charges and smoothing, earned on the With-Profits Fund since the transfer of your Plan to Prudential on 31 December 2007.

We promise to pay you the higher of either your Guaranteed Annuity income or your Total Annuity income.

Only applicable to with-profits annuity customers who transferred across from ELAS.

At the start of your Plan, you would have selected an income level, and we would have told you the Required Smoothed Return (RSR) you need to maintain this. The higher your RSR, then

• the higher your initial income,
• the lower the potential for future increases in your income, and
• the greater the risk of falls in your income over time.

You may have also changed your income and therefore your RSR since your Plan started.

Your future level of income depends on how the Smoothed Return announced for your Plan compares to your current RSR. The Smoothed Returns represent your fair share of the profits, after charges and smoothing, earned on the With-Profits Fund since the start of your Plan.

Only applicable to Income Choice Annuity (ICA) customers.

Your Plan has a Guaranteed Annuity income and a Total Annuity income. The level of your Guaranteed Annuity income depends on the level of the Regular Bonus we declare relative to your ABR.

We promise to pay you the higher of either your Guaranteed Annuity income or your Total Annuity income.

Only applicable to with-profits annuity customers who transferred across from ELAS.

Your Plan has a Guaranteed Annuity income and a Total Annuity income. The level of your Total Annuity income depends on the ORR and IRR we declare relative to your ABR and any GIR.

We promise to pay you the higher of either your Guaranteed Annuity income or your Total Annuity income.

Only applicable to with-profits annuity customers who transferred across from ELAS.

Income Choice Annuity (ICA) Plans have an underlying guaranteed level of income (called the ‘Secure Level’). The Secure Level is shown on your yearly statement. Depending on when your Plan started, the Secure Level may remain the same or increase based on the Smoothed Returned we declare.

Only applicable to Income Choice Annuity (ICA) customers.

With-Profits Pension Annuity Plans taken out on or after 15 May 2000 have a Minimum Income Guarantee (MIG). This provides customers of these Plans with the security that their income will never fall below a certain amount. Your MIG is shown in your yearly statement and depends on the ABR selected.

Only applicable to With-Profits Pension Annuity customers.

Diversification means spreading your money across different types of investments - like shares, bonds, property, and cash - rather than putting it all in one place, or spreading it across different companies, regions or governments within the same investment type.

This helps reduce risk. If one investment doesn’t do well, others may perform better and help balance things out. It’s a way to help protect your money and aim for more stable returns over time.

The With-Profits Fund’s investment managers ensure the Fund is well diversified.

An investment approach that combines different kinds of assets – such as equities, fixed income, property, cash and alternatives – within a single portfolio. Using multiple asset types helps balance risk and return.

Our savings and investment customers are backed by a diversified multi-asset strategy, with its managers aiming to secure the highest total return for the Fund (after any tax and investment expenses) while maintaining an acceptable level of risk and protecting our customers.

Assets which contribute directly to a community’s social, cultural and economic well-being.

Examples include companies, infrastructure, property, and certain types of private market investments. These assets are expected to produce long-term value rather than simply store it.

A way of describing where investments are made. “Global” means investing across the world, while “regions” refers to specific areas – such as the UK, Europe, US or Asia, each with its own economic characteristics and opportunities. 

Investments that provide regular interest payments and return the original capital over the term and/or at maturity. This includes government bonds, corporate bonds, and other debt securities, typically offering more stable returns than equities.

The Prudential Guaranteed Income Plan is backed by a diversified fixed income investment strategy within our With-Profits Fund.

A globally diversified investment approach is one that spreads money across many countries and regions. The aim is to reduce risk by avoiding reliance on any single market or economy. A globally diversified multi-asset investment approach is one that diversifies across many countries, regions and asset types.

Markets where investments – such as shares or bonds – are traded openly on regulated exchanges. Prices are transparent, and investors can usually buy or sell quickly.

Investments that are not traded on public exchanges. These can include private equity, private debt or infrastructure. They tend to be longer-term and often offer different sources of return compared with public markets. Investments are harder to access quickly, with capital committed for longer periods.

Investments in commercial or residential real estate. This can include office buildings, retail space, industrial units, or housing. Property can provide both income (through rent) and long-term growth.

Infrastructure covers investments in both economic infrastructure (such as airports, telecommunications and sources of renewable energy) and social infrastructure (such as hospitals, schools and prisons). As well as offering potential returns to investors, each of these types creates different benefits for society.

The ability to adjust how and where money is invested as market conditions change. This can include shifting between asset types, regions, or strategies to help manage risk and capture opportunities.

An approach that aims to grow money sensibly while carefully considering risks and long-term outcomes. It also includes acting responsibly – such as factoring in environmental, social and governance (ESG) considerations to help clients’ interests and support sustainable results.