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Prudential With Profits Fund - Risk Assessement?
M J
Posted: 20 March 2017 15:33:44(UTC)
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In the late 80's I started a Pension fund with Prudential and it has now grown to around to be around 30% of my total Pension Pot. I am now hoping to retire in around 5 years time and I am trying to assess the risk for the fund.

The money is invested in the "With Profits Fund" and every year they give me a very rough break down of where that money is invested. (Small pie chart a year out of date - really helpful not...)

As part of my planning I am trying to work out how best to lock in the growth I have had so far in all my different pension funds.

So I have always viewed the Prudential element of my pot as being safe(ish) element and not really looked into it too deeply. I have seen it as the bedrock and had a view to keep it until retirement.

So today I have been using my Google Fuu to try and assess the risk and if I should move the policy into a SIPP.

What I would welcome if anyone has time to comment on what risk they would rate the "With Profits Fund".

Is it a keeper or should I look to move it sooner rather than later into a SIPP and perhaps a less volatile like a Lifestyle fund.

FYI - King Londos has made me double check everything with his great insight on losses and how to best to try and lock in profit. See his post here: -

http://moneyforums.cityw...ifferent.aspx#post44672


kWIKSAVE
Posted: 20 March 2017 15:49:42(UTC)
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I have a Prudential with profits pension annuity paying out since about 8 years ago.

I like it. The Pru's w/p fund in my view is very solid.

I must also declare owning Prudential shares as a long term hold. Have owned them for about 18 months now.

The Prudential, which also owns M & G, is in very good nick financially.

It may be that you cannot assign it in to a SIPP so in that case there would probably be a penalty.

Fund size £68.8 billion as at 31 December 2016
Prudential Financial
Strength rating* AA
Portfolio Manager Prudential Portfolio Management Group Ltd
Investment Style Prudent Active
Performance Objective To offer competitive long term returns

They assess it as low to medium risk.

Although any terminal bonus is not guaranteed, transferring may be in your interests.

If taken out after 30.6.1988 it will be a personal pension rather than a retirement annuity. Nevertheless best to check if it has a Guaranteeed Annuity Rate.
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M J on 20/03/2017(UTC)
kWIKSAVE
Posted: 20 March 2017 15:55:18(UTC)
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oops... sorry meant to type

Although any terminal bonus is not guaranteed, transferring may NOT be in your interests.

My overall view would be to retain it until the plan's normal retirement date which I assume is 5 years away.

Stockmarkets have done well in the last year which should mean bonuses will not be reduced for the moment, if at all.
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M J on 20/03/2017(UTC)
M J
Posted: 20 March 2017 16:14:11(UTC)
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kWIKSAVE;44846 wrote:

If taken out after 30.6.1988 it will be a personal pension rather than a retirement annuity. Nevertheless best to check if it has a Guaranteeed Annuity Rate.


Thanks for your comments and I have been trawling through the paper work and can find no mention of any GAR and yes you are right it is a Personal Pension not an Annuity.

As for Transferring to a SIPP around 10 years ago an IFA recommended for me to transfer to a SIPP and I declined as I thought it was a safer bet to leave it as is, I also had a suspicion the IFA was after commission and not working my best interest,his logic for moving was pretty weak.

As it happens I think at that time he was looking to just move the FSAVC, and leave the Pension element and Former Protected Rights with them. I now need to dig out if there is a reason why they can not be moved into a SIPP.

After giving this some more thought, I guess the real risk is that if the stock market dives the Estimated Final Bonus will dive as well. This does pose some risk as that bonus currently represents a large percentage and if I lose that I will be rather miffed.

Also at the moment I have no MVR (Market Value Reduction) to pay if it I moved them (Pension and FSAVC)

At least in a SIPP I will only have myself to blame if I have not protected it to a less volatile investment choice...
kWIKSAVE
Posted: 20 March 2017 18:24:54(UTC)
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MJ

Is there such a risk if the stockmarket dives ...... only if nearer to drawing it.

In October 1987, just before the crash, a client transferred a large sum to a Friends Provident with profits S.32 contract and was a bit worried if the right thing had been done.

Immediately on average uk equity funds dropped 30% and managed funds around 20% , but from 1 January 1987 to 31 December 1987 the FTSE 100 rose by 6%.

With profits funds are to some extent cushioned from market falls as the wp pension annuity fund has to meet some obligations on payout.

Looking at Pru's factsheet as at 31.12.2016 over 30% held in fixed interest/cash and 15% in property.
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M J on 21/03/2017(UTC)
Colin E
Posted: 21 March 2017 07:04:44(UTC)
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Joined: 01/12/2015(UTC)
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I suggest you first need to decide if you are going to buy an annuity or use drawdown and also what your level of investment risk is.
Finding a trustworthy and competent adviser is essential in my view.
Don't forget all advisers must disclose and agree their costs with you at outset so you should not get any nasty surprises on fees.
This is too important a decision to take a chance with, get advice.
M J
Posted: 21 March 2017 10:31:34(UTC)
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Yes looking more closely at balance sheet around 45% is invested in more secure forms of investment and so the risk element is I guess around the 50% invested in UK Equities and International Equities.

So if we did have a crash then the fund element at risk is 50%...

What is playing on my mind is that around 50% of the value I have achieved so far with the fund is Estimated Final bonus and that is what would get cut back if we did have a crash at the time I needed the fund to provide retirement income.

The only way to protect that (I have 3 years before my stated retirement date, but planning to delay that another two years, hence 5) is to move it to a SIPP and change the style of investment.

I need to try and see how Final Bonuses have been affected by other crashes to get a realistic picture of risk. The problem being that you don't get told how many units you hold (if indeed they measure it via units). I guess this is why people now avoid these investment vehicles as they are opaque and not easy to understand.

So some back of fag packet calcs to try and put it in numbers...

Say I have £100k but of that £50k is estimated final bonus.

The risk I am trying to model is a 30% fall, I guess King Londos models even greater falls...

But if I did it simplistically at worst it would be 30% off £50k or a £15k loss. In reality because the overall fund is only 50% invested in potentially volatile equities then it would not translate to a 30% loss but something less and perhaps even more moderated because the aim of the fund is to hold back reserves to cover poor years. So maybe a 20% loss? That would be around £10k off the Estimated Bonus.

This is of course if my logic holds that the amount shown on my statement of £50k excluding bonus is truly secure...

Thank you kWIKSAVE for indulging me in this to help clarify in my mind what I am risking by staying with the fund or leaving... Open to others pointing flaws in my logic as I am a novice at this and still lots to learn...
Deano
Posted: 21 March 2017 10:48:34(UTC)
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Hi MJ

I also have this fund but not in a pension/SIPP. I consider it a boring, but low risk investment producing about 5% pa.

After having held it for 5 years, the final bonus (accrued not guaranteed) was worth 15% of the total value so I sold the holding (thus crystallised the final bonus) and then repurchased the same holding. I had no MVR or buying /selling fees hence I simply locked in the final bonus.

Whether you can do the same will depend on the details/small print of your policy, but it is worth looking at.

Good luck!

Deano
gggggg hjhjkl;'
Posted: 21 March 2017 14:55:08(UTC)
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Joined: 11/02/2012(UTC)
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I have held the Prudential With Profit Fund in the form of an endowment since 1998. I have added to it several times, the last time at the end of 2015.

I have taken a monthly income from the endowment since 2003. This With Profit based endowment is one of very few remaining, mainly due to the quality of the With Profit Fund IMHO.

I regard the fund as low risk and a core holding producing a 5% per cent income from an internationally diversified and very well managed fund.

Unlike a previous participant, I do not hold Prudential shares in my portfolio, purely because I hold the With Profit Fund.

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