Market Value Reduction Query?

Mothman

Can anyone clarifiy how a Market Value Reduction would work in principal on a With-Profits pension transfer.

For instance, if a fund was worth £100K (£75K Accumulation & £25k Terminal Bonus) and you chose to transfer at a time when there was a 10% MVR in place, then would the MVR apply to the whole fund value or just to the terminal bonus i.e £100k x 10% =£10K or 25K x 10% = £2.5K ?

Thanks

OldMusicGuy

I've just transferred a with profits fund and it was my understanding the bonus could be subject to MVR. My statements always showed the investments separate from the with profits bonus portion and the investment value was the value of the holdings in the various funds. The bonus was calculated by the provider using whatever method they used and thus could be subject to an MVR, especially if you decided to transfer.

The way the with profits provider told me to proceed (after trying to convince me not to proceed by saying they could not guarantee what the final transfer value would be) was to action the transfer but ask the provider to whom I was transferring the fund to ask for a quote of the transfer value before proceeding. That was the only way (they said) that they could give the real transfer value. I was transferring to an HL SIPP so I asked HL in writing to get a quote for the transfer value before proceeding and contact me. They did this - the with profits provider contacted me directly to let me know what the transfer value would be and to confirm if I wanted the money transferred. In my case I got the full bonus value with no MVR.

dunstonh

MVRs are not normally displayed as a percentage but as a monetary amount. However, it does depend on the company and the version of their contract.

Mothman

Many thanks for the replies and the clarification, I had wrongly assumed that should an MVR be imposed it would be a set percentage that wouuld apply to all WP policy holders.

It is a Prudential pension with 9yrs to run until seltected retirement date. No MVR at present and so will keep my fingers crossed that the nearer I get to the selected retirement date the smaller the chance of a substantial MVR should I decide to jump ship early.

dunstonh

I had wrongly assumed that should an MVR be imposed it would be a set percentage that wouuld apply to all WP policy holders.

No. Very very old conventional with profit plans that could happen. However, most plans adjust their terminal bonus and MVRs far more frequently and base it on the dates the contributions were made into the plan. So, two people who invested the same amount 6 weeks apart could have totally different figures.

It is a Prudential pension with 9yrs to run until seltected retirement date. No MVR at present and so will keep my fingers crossed that the nearer I get to the selected retirement date the smaller the chance of a substantial MVR should I decide to jump ship early.

Pru rarely apply an MVR and the longer the timescale, the less likely an MVR would exist on their fund.

OldMusicGuy

FYI I had a Standard Life with profits fund and they adjusted the terminal bonus up by about £600 just before I transferred it. I was 6 years off nominated retirement date but got all of the bonus.