Prudential with profits AVC info

fred_karno

I invested in a Group AVC in late 90s and the scheme used Prudential with profits as the investment vehicle. I've had an annual statement each year and seen the guaranteed bonuses go up slowly and the projected final bonus rise YOY. i am now close to normal retirement date and that set in train some communications with Prudential, with some info that may be helpful for other on site, so i thought i would share it for others who have Prudential AVCs.
I had always assumed that Prudential reviewed their fund performance annually and altered the final bonuses payable something like example below:-
Say you invested £4000 in 2000 and received guaranteed bonuses over the years of £1,000, in 2017 the final bonus projected was, say, 50%, so total "value of fund" was £5000 ( £4k invested and £1k guaranteed/annual bonuses) + £2500 = £7500. In 2018 the final bonus for year 2000 investments was, say, 60%, so the total plan value was projected at £5000 + £3000 = £8,000. I also assumed that if you encashed/purchased annuity etc. in 2019, this value might alter depending on what month of 2019 you acted.
The reality is somewhat different!. I found this out as i received a letter (everyone gets one around 6 months before normal retirement date) dated 7th March 2019 that gave a "current" fund value of £77k - as the guaranteed plan value at last statement date was £42k, this meant a final bonus projected of circa £35k. 6 weeks later i was talking to a Prudential adviser (to find out their charges for drawdown) and he had a value of £68k - a drop in the final bonus projection of £9k!. I asked him to explain this huge variation and he promptly decide to treat my query as a complaint and passed it to the Prus complaints department. It was long conversations with them that elicited the details below (and I cannot find much of this info on a Prudential website.
1. There is an annual review of bonus levels, seemingly based around calendar years. The CEO signed a letter entitled "With Profits bonus declaration February 2019", which is on the web. The gist was to say 2018 had been a difficult year. Annual bonuses would be maintained but "for most of you, we’re reducing final bonus rates slightly, compared to the rates we declared last year."
2. Although this letter was headed February 2019, it appears the implementation of the bonus changed was 15th March 2019.
3. So, in early March when my 6 month letter was sent, the bonus was £35k, but on 15th March 2019, it went down to £26k. Perhaps I was unusual, but iot certainly wasn't a "slight reduction" as per CEO's missive. Given another thread has a contributor saying his final bonus went down from £31k to £25k on same date it does make you wonder.
4. Whilst Prudential may be technically correct in saying to me that my fund had a "current value" of £35k in the letter, as the letter was dated before the implementation - the reality was they knew at that point there would be a large reduction for me between the letter and my normal retirement date (in fact a week later!). Even a note to say that 2018 bonus adjustments would be applied a week later and i should check the revised value at that point, would have been more open.
5. The odd thing was that my anniversary statement from Prudential dated 31st May 2018 actually showed a plan value of around £68 - so even after the drop, i was apparently no worse of than in May 2018!.
5. Further questioning provided the info that Prudential actually do another bonus adjustment at your plan anniversary date ( which is different for every one). I struggled to get my head round this one, but it seems to work on basis that if you invested in say 2000, then up to your anniversary date, they would use the 2001 bonus rate for you and after your anniversary date they would use the 2000 final bonus rate. So on 31st May 2018 my fund was "worth" £68k. On 1st June the investment moved up a year in final bonus rates and suddenly became worth (according to Prudential complaints adviser) £77k approx. It stayed at this value until the 15th March 2019, when the new final bonus rates were applied (and annual guaranteed bonus added) and this brought it down to £68k again.
6 You may think, as I do, it is incredibly stupid to send out an anniversary valuation dated 31st May with a valuation that changed the next morning by £9k, given it takes them a good few weeks to print and send them out. However, this is what apparently happens. ( I think they need to give the anniversary date valuation to comply with financial rules - but this wouldn't stop them from explaining that the value changes the next day or, indeed, giving that revised value).
7. My big question is therefore what will happen on 1st June this year? Going by past years, my fund should increase again - hopefully significantly as the anniversary date passes - but as Prudential refuse to release final bonus rates ("Commercially confidential"), i will have to wait until early June, ring up and find out. Without those final rates, it is also impossible to check their calculations and I must say I am amazed that the final bonus could go up by 30% plus simply through a one year change in the final bonus rates as it apparently did last year.
So, if you want to know the true value of your plan, when you get your statement, ring up and ask them for a current value - it could be significantly different from the statement you have just received.
If you get your 6 month letter, work out whether there is an anniversary and/or annual bonus review date in the 6 months to your retirement date. If there is not, then the value given by Prudential seems likely to be believable, according to the Pru adviser. If, however, either of the review dates intervene, ring up immediately after the relevant date and ask for a new value.
The really annoying thing for me is that a lot of this could have been avoided by Prudential being more open and customer orientated. A further example of that is on the Pruretire website. You can log in and see month by month your contributions. However, my showed nothing in 1996 and 1997, then a large lump sum in May 1998. "A legacy system issue" according to Pru - but again a simple note to the page would have saved confusion.

dunstonh

I have picked a few snippets from your post as its difficult to read due to lack of clear formatting

I had always assumed that Prudential reviewed their fund performance annually and altered the final bonuses payable

Not for about 30-40 years. That was known as conventional with profits. You rarely see it on any plan held today as most matured/transferred a very long time ago. Sometimes seen on S226 retirement annuity contracts.

Pru Group AVCs have never worked that way.

but as Prudential refuse to release final bonus rates ("Commercially confidential"), i will have to wait until early June, ring up and find out. Without those final rates, it is also impossible to check their calculations and I must say I am amazed that the final bonus could go up by 30% plus simply through a one year change in the final bonus rates as it apparently did last year.

Final bonus rates are actually much more fluid than that. It can depend on the version of the fund you are in but they can change many times over the year. Some accrue/adjust potentially on a daily basis.

The really annoying thing for me is that a lot of this could have been avoided by Prudential being more open and customer orientated.

Or perhaps you reading about what you have and not assuming it was something else?

So, if you want to know the true value of your plan, when you get your statement, ring up and ask them for a current value - it could be significantly different from the statement you have just received.

Statements are often a number of months old before you get them anyway. However, the transfer value is correct at the point it was issued. It will only be different due to positive/negative investment returns.

stronginthesun

ive got a with profits with pru pension . i think its doing well just hoping it continues until i retire in 8 years

fred_karno

To pick on a few points dunstonh has made in his response: -

Final bonus rates are actually much more fluid than that. It can depend on the version of the fund you are in but they can change many times over the year. Some accrue/adjust potentially on a daily basis

Not in my AVC plan (unless Prudential themselves dont know what they are doing). I quote exactly from the Prudential letter I received. In normal circumstances the amount of your final bonuses will change on two different days throughout the year. These days are 15th March when our new bonus rates come into effect, and the day after your scheme anniversary date, which is 31st May..

Or perhaps you reading about what you have and not assuming it was something else?

Where should i have read about the bonuses being changed twice per year? I looked at all the literature, both from inception and annual statements, and on their website and nowhere does it explain the final bonus system and twice annual changes. Literally the only item I could find was the February 2019 Statement of bonuses added, that I referred to in my post. The wording of that "we’re reducing final bonus rates slightly, compared to the rates we declared last year", suggests to me an annual review.

The anniversary statement does not mention bonuses changing immediately after that date - and that is one of my criticisms of Prudential - how am i supposed to know that if they don't tell me?

Statements are often a number of months old before you get them anyway. However, the transfer value is correct at the point it was issued. It will only be different due to positive/negative investment returns.

Again, I fully accept statements are often months old before you get them - I actually made that point and I accept there could be ongoing (small) changes as annual bonuses build up. However, if you accept what Prudential stated in their letter as factual (i.e. the final bonus would change on 1st June and then not until 15th March in the next year), then it would be perfectly possible to state in the statement to give the value on 31st May and then add "On 1st June each year your final bonus rates change following your anniversary and you final bonus is now projected at £xxx." I think everyone would regard that as being customer friendly and much more informative.

Statements are often a number of months old before you get them anyway. However, the transfer value is correct at the point it was issued. It will only be different due to positive/negative investment returns..

What do you regard as the date it was issued? If you mean the statement date - 31st May, then that is clearly correct. However, If I don't receive it until late July, then i would argue Prudential have not issued it (i.e. printed it and sent it to me by post) until then.

And No - it will not only be different due to investment returns - it changes the day after the anniversary day - in my case from £26k to £35K - due to the years roll over.

In respect of the 6 months before NRD letter I got with a fund value said "the fund value quoted includes a bonus calculated at the current rate".

That is true in the sense that if I had previously issued a request to transfer the funds out and it had gone through on the date of my letter that would have been the current rate. Of course if i had done that, the transfer value letter would have been irrelevant to me.

If, on the other hand, I had not started any transfer process, then is it unreasonable to expect "current Value" to represent roughly the value I might get if i started the process immediately on receipt of the letter? (And yes, I know that the definitive value is only available once the formal transfer request has gone through and the process started). I accept that Prudential had not implemented the new rates, but they had calculated them and published a statement regarding them. At the very least a 6 month letter sent out should have a caveat to point out what i have now been told - i.e. bonus rates change twice a year (giving dates) and these dates can significantly alter your final bonus.

To reiterate:-
I only found out all this information by pushing the complaints handler to go into details that are not published anywhere by Prudential. There is no reason why they could not have this information publicly available and then the large swings would come as less of a surprise.

Tight_Fart

My Pru pension fund transfer value dropped 5% around the beginning of April, not happy as coming up to withdrawing to drawdown.

dunstonh

Tight_Fart wrote: »

My Pru pension fund transfer value dropped 5% around the beginning of April, not happy as coming up to withdrawing to drawdown.

Why would that make any difference?

As you are going into drawdown, you are going to be there for a long time, You are going to see ups and downs frequently.

If you are planning a full drawdown in the short term (or a large draw) then that should be in a lower risk option.