Prudential review of AVC exit chargeJuly 15, 2015
The latest update from the Prudential on the issue of the exit charge can be found below. If members have any queries about this please contact the Prudential directly on this number 0800 032 6674 or visit their website.
An update from the Prudential- 28/10/2014
When the exit charge was first introduced for short term contributions for new AVC applications after the 19th August 2012 we committed to review the level of charge and make any adjustments that we deemed necessary based on experience of new applications and any other factors.
Over two years have passed and there have been some significant changes that mean that we are now in a position to reduce the exit charge, both in terms of the level of charge that we will apply going forward and over the period in which it will be applicable.
The main factors in this decision being made are:
1. Since August 2012 there has been a steady reduction in the number of members paying AVCs over the very short term thus reducing the cost pressures on the AVC facility resulting in a fairer spread of the costs across short, medium and long term customers.
2. The level of annual allowance has continued to reduce, down to £40,000 at April 2014 and has restricted the levels of AVCs paid close to retirement, resulting in a change of behaviour that is now seeing more members paying AVCs at a lower contribution level over a longer term.
3. The ‘Freedom and Choice in Pensions’ flexibilities announced in the budget on 19th March 2014 will further encourage members to make extra contributions towards their retirement over the medium to long term, thus further reducing the impact on short term AVC contracts.
The changes being made, with immediate effect are:
1. The exit charge will only be made if the member retires within 3 years of making their first AVC instead of the current 5 years.
2. The charge applied will be reduced to 3% in year 1, 2% in year 2 and 1% in year 3. No exit charge will be applied if the term of the AVC exceeds 3 years.
AVC members who have had an exit charge applied:
Cases which have exited on or after 19 March 2014 will be given an additional payment, which has the effect of reducing their charge to the higher of £400 or the equivalent new charge (3%, 2% or 1%). In such cases we will make an ex-gratia payment to members.
Where the charge was below £400, no amount will be paid.
We will make amendments to our AVC website and all relevant literature to reflect these changes and would appreciate it if you can make any similar changes to any scheme literature or website that reflect the previous exit charge levels.
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