With Profits?

Thomas2500

I am 58 years old and can access both my occupational pension and my AVCs pension at 60. I’ve decided to invest quite heavily into my AVCs pension in the next two years and will pay around £800 net which will equate to £1000 gross each month. I will be living off savings and freelance work for the next two years. The default fund for my AVCs is the Prudential With Profits Fund which, after researching on the internet is beginning to worry me. From what I’ve read, a lot of With Profits Funds were only sold due to the high commission the advisors received and are not performing at all well. The one good thing however is that the Prudential is one of the better providers and is actually not performing too badly.....apparently! I have the option of putting any future investments into a more equity based fund which carries a slightly higher risk and doesn’t provide “smoothing” or keeping it in the With Profits Fund and keep the “smoothing.” I know that as you reach retirement age you should move pensions into less risky assets but I feel that as I will receive around £20,000 a year from my occupational pension and have already qualified for the new state pension I can afford to take a more risky approach. I also have around £30,000 in an investment ISA, and if necessary can carry on working freelance. Please advise.
Thank you,
Thomas2500

saver861

Thomas2500 wrote: »

I am 58 years old and can access both my occupational pension and my AVCs pension at 60.
... I know that as you reach retirement age you should move pensions into less risky assets but I feel that as I will receive around £20,000 a year from my occupational pension and have already qualified for the new state pension I can afford to take a more risky approach.

If you are going to retire at 60 in less than two years and you have to take the AVC as it is at that time, then I'd be going for the less risky option.

Your investment is unlikely to build much in under two years but could take a massive hit in that time if there was a crash.

I put my AVC's into a low risk fund two years before my intended retirement date. It meant any crash etc did not impact on my retirement plans.

dunstonh

The default fund for my AVCs is the Prudential With Profits Fund which, after researching on the internet is beginning to worry me.

Nothing to worry about with the Pru WP fund.

From what I’ve read, a lot of With Profits Funds were only sold due to the high commission the advisors received and are not performing at all well.

No. That is complete and utter rubbish. Back in the commission days, there was no difference between unit linked and with profits. Commission was banned at the end of 2012.

The internet can be full of useful information but a lot of it is rubbish. Frequently taking 2+2 and making 5.

Many WP funds became expensive and the liability too high and closed for new business and moved heavily into fixed interest as their focus became solvency before returns. Often this happened after the tech crash and some funds have yet to recover their pre dot.com pricing. However, this does not apply to all WP funds.

kidmugsy

Thomas2500 wrote: »

I will be living off savings and freelance work for the next two years.

Are you certain that you are still allowed to contribute to the AVC if you have left the relevant employment?

Does the Pru offer a cash or deposit account within the AVC? That would probably be even lower risk.

saver861

Blue_Parrot wrote: »

Are you certain that you are still allowed to contribute to the AVC if you have left the relevant employment?

Well if you can, presumably there would be no tax benefit which is the plus of the AVC, so its not clear why anyone would want to.

Blue_Parrot wrote: »

Does the Pru offer a cash or deposit account within the AVC? That would probably be even lower risk.

Yes, or it certainly used to do anyway, and I would presume it still does. I shoved my AVC's into a deposit account with the Pru coming up to retirement to protect against and nasty downturn. That said, the WP might be less at risk against a crash and there might be MVR charges for moving the funds, so would need to be factored in.

jamesd

What are your plans for the money? The guidance about using less risky assets as you approach retirement is based on the old assumption that you're going to buy an annuity with the money as soon as you reach 60.

Even if that isn't true any more it is true that at present the cyclically adjusted price/earnings ratio for many major stock markets is above the average and that's been shown to imply lower than average future returns for a while. In part due to more expectation of a big drop. So you might want to reduce investment risk for this reason even if you don't plan to buy an annuity.

Even though I'm completely happy to own equities I've been switching out of them gradually over the last year because of that P/E issue and am continuing to do so. I expect that I'll switch back once the P/E gets well below average again, whenever that is.

One thing about man with profits funds is the issue of market value reductions but this may not apply if you just take the money at the normal retirement age. It's worth checking your own situation because this could make a move out unnecessary. If you have units in the fund I don't think that this protection would apply, though, but perhaps best to check and be sure rather than assume.

saver861

jamesd wrote: »

What are your plans for the money? The guidance about using less risky assets as you approach retirement is based on the old assumption that you're going to buy an annuity with the money as soon as you reach 60.

I'm not sure it was based solely on this, though that is what most people did back when the rates were rates.

On the basis that you have to take your AVC at the time of retirement, regardless of what you intended to do with it, it would be protected from a significant drop or crash in the run up.

jamesd wrote: »

One thing about man with profits funds is the issue of market value reductions but this may not apply if you just take the money at the normal retirement age.

It does not apply at maturity but taken early it does. That said, MVR is calculated daily and can vary somewhat from zero upwards to a sizeable sum depending on the size of the AVC pot.

jamesd wrote: »

It's worth checking your own situation

I would say imperative for every case.

grey_gym_sock

jamesd wrote: »

What are your plans for the money? The guidance about using less risky assets as you approach retirement is based on the old assumption that you're going to buy an annuity with the money as soon as you reach 60.

yes. i.e. if you're going to use drawdown (instead of buying an annuity), it's different. you may want somewhat different investments for a drawdown portfolio, from what you used in the accumulation stage - but in that case, you'd start moving towards a drawdown portfolio, not towards eliminating almost all risk (which also eliminates almost all return).

Even if that isn't true any more it is true that at present the cyclically adjusted price/earnings ratio for many major stock markets is above the average and that's been shown to imply lower than average future returns for a while. In part due to more expectation of a big drop. So you might want to reduce investment risk for this reason even if you don't plan to buy an annuity.

Even though I'm completely happy to own equities I've been switching out of them gradually over the last year because of that P/E issue and am continuing to do so. I expect that I'll switch back once the P/E gets well below average again, whenever that is.

from other posts you've made, you're moving from equities to a number of P2P platforms, which may currently offer a better trade-off of risk and reward than equities do. this is a very unusual strategy, but IMHO you do appear to have thought it out.

however, from your post in this thread, it might sound like you think the OP could sensibly move their AVCs to cash (with virtually zero return), and stay in cash while waiting for equities to become cheaper. that is completely different from your P2P strategy. and it's a very bad strategy if the OP isn't planning to buy an annuity with this pot.

jamesd

Hmm, I do temporarily have more than £100k in cash pending moves happening but you're right that I wouldn't generally suggest holding cash for what could be a long time. While the cyclically adjusted P/E shows what is likely it doesn't say when and markets can persist in doing things for a considerable time.

For me with P2P it's easy because I expect better returns from P2P than from long term equity investments so I don't expect to actually lose out. For others, while I'm not hugely keen, short-dated bond funds would be a useful alternative.

Previously I'd mentioned commercial property funds as an alternative but with some property funds now showing signs of an increase in redemptions that no longer looks like a good move. At least not until any dust clears from the EU referendum.

Of course we don't know anything about what the plans for the money are so there's a pretty severe limit on what we can usefully suggest.

Thomas2500

I should have mentioned that I am still paying into my occupational pension on a part time basis. I plan to live on this at 60 and leave my AVCs invested for as long as I can before going into draw down. I have no plans to buy an annuity. Thanks to everyone for their replies which have been extremely helpful.

agarnett

dunstonh wrote: »

Nothing to worry about with the Pru WP fund.



No. That is complete and utter rubbish. Back in the commission days, there was no difference between unit linked and with profits. Commission was banned at the end of 2012.

The internet can be full of useful information but a lot of it is rubbish. Frequently taking 2+2 and making 5.

Many WP funds became expensive and the liability too high and closed for new business and moved heavily into fixed interest as their focus became solvency before returns. Often this happened after the tech crash and some funds have yet to recover their pre dot.com pricing. However, this does not apply to all WP funds.

IMHO you're the one writing misleading rubbish here, dunstonh.

Commission was banned at the end of 2012. A mere 3½ years ago. So when was most WP sold, and what distinguishes it from new WP business?

Tell us again when was it that the majority of WP funds closed for new business? Much earlier than 2012.

So therefore WP = always too heavy front-ended AND tail commissions is still a valid general assertion about WP.

That commission was paid to the hoards (literally hundreds of thousands) of provincial spivs that over the years had a go at being "financial advisors", and who too easily made purring noises to punters like "can't go far wrong with Norwich Union", and then "can't go too far wrong with Aviva". Are some still receiving tail commissions annually on pre-2012 sales they made?

Subsequently WP has become far too much about how fund managers might corner the true yield on those billions which are managed behind sceens more opaque than your bathroom windows, and which are constantly creamed by providers who couldn't give a toss about policyholder expectation. The city spivs that manipulate the funds and have their snouts in the trough containing the old funds today, start with the 5 you invest and then quickly make 2+2 out of it, plus some non-committal arm-waving about final bonus and past performance.

They confuse you and themselves with totally undefined phrases like "smoothing" and jargon like special bonus and special distribution and reattribution and WP Committee, and inherited estate and hope you remain sufficiently baffled for long enough to lose control of what it was you thought you bought into it for whilst they dream up more ways to vary ownership your WP funds to cream off all the best for themselves.

What's all that gloss on top about the dot.com crash, dunstonh? That was donkeys ago. My WP Aviva S32 pension wasn't started until well after that. That hasn't stopped it being systematically raided starting within about 2 years of the commencement date - even propping up the black hole in the Aviva staff pension scheme on a regular basis now too. Their continuing pension scheme is a valid on cost of doing my WP business apparently, even though mine was a single contribution policy started 12 years ago.

Daylight thievery.


You make me very concerned by the way you gloss over WP on these forums, dunstonh.

Punters cannot trust any WP provider with their money. Full stop. Nothing about the contract you buy will remain the same to maturity - not even the policy number in many cases. The provider name will certainly not remain the same. Expect the company name of the provider to change on average around every 5 years - takeovers, re-organisations, mergers, shedding of liabilities, bundling of funds they've grown tired of managing ...

Avisers like dunstonh start calling the contracts "legacy" i.e. old fashioned, within a few short years of commencement. They're supposed to be career-long pension contracts for chrissakes!

Advisers who still purr that you should be ok in any WP fund worry me.