With profits terminal bonus

fred_karno

I know I am probably asking the impossible - but can anyone explain in simple terms the following: -
I have a Prudential AVC from an old employment, with no contributions since 2000. Over the years it has increased, although the terminal bonus obviously went down significantly in the crash in 2008. However, I have just got the statement for May 2013 covering for the year between May 2012 and May 2013
The statement shows an additional annual bonus of 2.25%, as per Prudential declared bonuses, which is fine. It also shows a terminal bonus -but this bonus has actually gone down by £1500 - or nearly 10% since May 2012. As Prudential have said their with profits fund enjoyed a POST TAX return of 8.8% in 2012, why does the terminal bonus go down. I know there are charges to the fund and they do warn about smoothing - but I would have thought that if the underlying performance has gone up 8.8%, then even after 2.25% annual bonus and charges, they should not be a reduction suffered in terminal bonuses.
Is anyone able to shed any light? It is really for interest, as I have little option but to let the fund continue to my normal retirement date both because of the inevitable Market Value Reductions that apply for early withdrawal and also because I want to use part of it as cash free lump sum out of main pension scheme to which it has been attached.
The whole terminal bonus issue seems shrouded in secrecy - it seems as though Prudential could do anything and no one would be wiser as to whether it was fair or not.
Thanks

planteria

i will be interested to replies too, fred

how many years before your 'normal retirement date'?

dunstonh

As Prudential have said their with profits fund enjoyed a POST TAX return of 8.8% in 2012, why does the terminal bonus go down.

First of all your timescales are different. Pru gave a 2012 period. You gave a 12 month period from May-May. The markets fell heavily in Spring. So a reduction in the terminal bonus would be expected.

The whole terminal bonus issue seems shrouded in secrecy - it seems as though Prudential could do anything and no one would be wiser as to whether it was fair or not.

The information is published and you can read it. The decline in terminal bonus in that period is logical and fits the near 20% losses that occurred in Spring 2013.

Annual bonuses, once added, cannot be taken away. Final bonuses can go up and down like a yo yo and typically follow economic events. Smoothing can delay the response as there is typically a lag on most WP funds. Depending on the age of your WP investment fund, the adjustments to the final bonus can either be daily, monthly half yearly or yearly.