With Profits Funds (PruFund)

eric100

I'm considering transferring out my final salary pension due to the large transfer value and the flexibility. One of the options suggested by the IFA engaged is the PruFund which is a with- profits fund. Could anyone offer their view on with-profits funds and also the PruFund specifically?

I recall "with-profit" funds previously having some negative feedback in the past particularly around transparency from the companies operating them and also costs for exiting etc. Not sure what the current view is and whether people are cautious of them?

Also, anyone have any experience of the PruFund specifically, any thoughts?

Many thanks

Linton

I have owned a WP pru-fund since 2002. Since then it has steadily increased in value with minimal volatility by an average of 5.6% annually in good times and bad. It was barely affected by the tech crash and the 2008/2009 crash.

So I would rate it highly as a safe investment suitable for a cautious investor or as part of a large portfolio enabling one to take higher risk (with the possibility of higher return) elsewhere.

As a WP fund there is no transparency but if it provides the reliable returns one may wish, does this matter?

dunstonh

The modern Pru WP fund is not like a WP fund of old. Indeed, given the choice, the old Pru WP fund is actually better (lower cost as they didnt charge as much for the contractual guarantees back then). Whilst most of my clients have been moved out of WP funds. Pru is one that continues to achieve exactly what those type of investors want and we tend to leave them in place. They are not fashionable. They are not sexy or interesting but they achieve what is wanted. It is the one viable WP that still exists.

You will find some people who have little knowledge of these things posting on the internet slagging off all WP funds as if they were one thing. You should disregard those types. There are always some gems in with the rubbish.

kidmugsy

dunstonh wrote: »

Pru is one that continues to achieve exactly what those type of investors want and we tend to leave them in place. They are not fashionable. They are not sexy or interesting but they achieve what is wanted. It is the one viable WP that still exists.

dunstonh, do any of the Friendly Society WP funds pass muster? In particular those one can access with an S&S ISA?

dunstonh

do any of the Friendly Society WP funds pass muster?

None stand out off the top of my head. I don't know them all though. Some are regional or not the sort fo thing that pops up on the IFA side often enough.

WP funds are expensive to maintain nowadays. The primary focus is solvency before return. So, one fear that should exist with any WP fund investment is that the insurer may decide to sell its UK book to Phoenix or ReAssure etc. So, if you do pick a current investment wrapper, you should make sure it has an penalty free exit. Pru have considered selling up their UK book several times now. to focus on the Asian markets (which is bit like the UK was in the 70s-80s - low regulation, high charges, high profit - for now). Friendly society plans tend to have heavy exit charges and I would be on guard on that point.

westv

So not so friendly Friendlies then?

Malthusian

It seems contradictory to encash a final salary scheme (suggesting you place a low value on guarantees) and then invest it in a With Profits fund (suggesting you place a high value on them).

If you take the transfer value from a defined benefit pension, even with CETVs inflated as they are thanks to low gilt yields, you're forfeiting a guaranteed pension that you wouldn't even get close to being able to purchase on the open market with your CETV. I'm not saying this is wrong - depending on your circumstances and personality it may be the right thing to do. But it suggests that you place a far lower value on the guaranteed pension at a given age that the general open market for annuity products does.

So after giving up guarantees at a much lower price than the open market thinks they are worth, it makes little sense to spend money on the guarantees offered by With Profits fund instead. You get charged in two ways: firstly these products charge more than a portfolio based around low-cost tracker funds, and secondly, it's a law of physics that if they pay out more than a directly-stockmarket-linked fund would in bad years, they will pay out less in good years. (In With Profits terminology, they will hold back growth in good years in order to keep paying bonuses in bad ones) It follows that someone who invests their money in With Profits must value guarantees more highly than the majority of investors who invest in funds that are linked directly to the stockmarket.

So there is a contradiction between giving up guarantees for a low price and saying you're happy for your share of the defined benefit fund to go up and down with the stockmarket, then saying you'd rather have the ups and downs of the stockmarket semi-hidden from you and pay high charges for it.

eric100

Linton, Dunstonh.......may thanks, very useful

Malthusian.....thank you, you have given me something more to think on, who thought retirement would be so complicated!