Drawdown from Prudential With Profits Fund

tacpot12

A friend has an Personal Pension Plan with the Pru. All her money is invested in the With Profits fund. The fund has grown reasonably well and she is not minded change the fund or move her Pension. She is due to retire in May of this year, but doesn't want to start drawing down from her Pension Plan for six to nine months as she still has some inheritance cash that she is living on.  

She has asked me to help her figure out whether the With Profits fund is a good fund to remain invested in when she starts to drawdown her pension. Her concern is that she doesn't understand what will happen to the Final Bonus that her annual statements show if she does not withdraw the entire fund at the retirement date recorded on her statement.  We've tried to call the Pru to ask, but felt that the person we spoke to didn't understand the question. 

We were also trying to determine whether Market Value Reductions would be made (if the Pru deem them necessary) to each withdrawal. The person we spoke to at the Pru said that no MVRs would be applied to any withdrawal after the policyholder's retirement date, but this is at odds with the documentation available from the Pruu which says that the only time an MRV will never be applied is if a withdrawal is made on the planned retirement date. 

Does anyone have any experience of drawing down from the Pru With Profits fund? 

We have a letter drafted to the Pru to (re) ask these questions, but this will take time to get an answer and she would like to understand whether she needs to consider switching funds, or even provider, to get a product she can understand. 

I've read the Pru's Principles and Practices of Financial Management for the With Profits fund and it just doesn't mention anything about how a sequence of drawdown withdrawals would be handled.

kerfootuk

I have the same product and when I enquired the Pru wanted 3% of the fund value to transfer it to one of their drawdown products so I'm looking for alternative providers with lower or no fees to transfer to. Had a couple of IFAs round but not made a decision on which to go with, if  either. 

tacpot12

I think the Pru can support UFPLS drawdown on the Personal Pension Plans, but not Flexi-drawdown. If you want to do Flex-drawdown, they will make you change product. A 3% charge is no way to reward a customer for their loyalty.

dunstonh

She has asked me to help her figure out whether the With Profits fund is a good fund to remain invested in when she starts to drawdown her pension.

I have yet to come across a legacy Prudential pension plan that supports any drawdown option other than UFPLS.

er concern is that she doesn't understand what will happen to the Final Bonus that her annual statements show if she does not withdraw the entire fund at the retirement date recorded on her statement.

The final bonus accrues as she goes along.   Whether she takes partial UFPLS or not.

We were also trying to determine whether Market Value Reductions would be made (if the Pru deem them necessary) to each withdrawal.

Normally, yes.  However, some plans have MVR free points based on the scheme age.  if the scheme age is deferred, which it would have to be if she has reached that point, then the expectation is that the MVR point would move it. I would want it in writing that there is no MVR beyond a specific age and would analyse the wording carefully.  i.e. in case they refer to scheme age as being the MVR free point but the scheme age keeps getting put back.

We have a letter drafted to the Pru to (re) ask these questions, but this will take time to get an answer and she would like to understand whether she needs to consider switching funds, or even provider, to get a product she can understand. 

Are alternative funds available?   Many of the old Pru plans only have the WP fund available.

I've read the Pru's Principles and Practices of Financial Management for the With Profits fund and it just doesn't mention anything about how a sequence of drawdown withdrawals would be handled.

It won't do as they do not support drawdown and its irrelevant to the fund itself.

UFPLS is a single ad-hoc lump sum withdrawal and no sequencing exists.

I have the same product and when I enquired the Pru wanted 3% of the fund value to transfer it to one of their drawdown products so I'm looking for alternative providers with lower or no fees to transfer to. Had a couple of IFAs round but not made a decision on which to go with, if  either. 

The OP hasn't made reference to which Pru product it is.  However, your outcome is in line with expectations.  i.e. the Pru sales rep will look to sell the modern Pru pension and transfer it to that.      Many IFAs will not use the Pru plan as it's expensive, limited in fund choice and has very clunky software.  It doesn't support partial transfers out and doesn't support in-specie transfers out.     So, an IFA should come in with a better option and, subject to fund value, you should be able to find cheaper than 3% with some shopping around.

Albermarle

We have a letter drafted to the Pru to (re) ask these questions, but this will take time to get an answer

From other threads it seems that post Covid, the customer service /response times from the Pru have been very poor.

dunstonh

Albermarle said:

We have a letter drafted to the Pru to (re) ask these questions, but this will take time to get an answer

From other threads it seems that post Covid, the customer service /response times from the Pru have been very poor.

Pru used to be great at dealing with written correspondence.   However, once they moved to Lancing, it went backwards and it has never recovered.  That move and decline in service occurred before Covid.

tacpot12

Thanks for the replies so far. 

I would like to understand Dunstonh's comment that "The final bonus accrues as she goes along..." a little better. 

From her perspective, she has a Pension Plan Statement that shows the Plan Value (her contributions plus the regular bonuses, the value of the Final Bonus accrued to date, and any MVR (currently 0). Say the plan value is £50K and the value of the Final Bonus to date is £50K. If she makes a withdrawal via UFPLS of £1,000 on the date of her planned retirement, but no further withdrawals, what would you expect her statement to show?  

I am inclined to think that it would show a lower Plan Value and a lower Final Bonus, but if she were to make no further withdrawls, I would expect the Plan Value and the Final Bonus figures to start increasing again as the investment performance (and the final bonus that is due on it) continues to add to the With Profits fund. Is that how it works? It seems intuative that it would work this way, but there is nothing in any literature to confirm this.

If she were not to be able to earn any further Final Bonus amounts by leaving her money invested then her future  investment returns will be more than halved.

zagfles

If she transferred it out to a more modern plan on planned retirement date would there be a MVR? I would guess not, and also shouldn't be any charge, most drawdown providers don't charge to set up drawdown, and certainly not as much as 3%

Could check to confirm and maybe transfer to a different provider, I think all drawdown providers have to offer "investment pathways" if she doesn't want to decide on what to invest in - these give a number of default investment options depending what your plans are.

dunstonh

From her perspective, she has a Pension Plan Statement that shows the Plan Value (her contributions plus the regular bonuses, the value of the Final Bonus accrued to date, and any MVR (currently 0). Say the plan value is £50K and the value of the Final Bonus to date is £50K. If she makes a withdrawal via UFPLS of £1,000 on the date of her planned retirement, but no further withdrawals, what would you expect her statement to show?  

It goes by the transfer value.  Not the current value.  Final bonus accrued to date is included in the transfer value.  So, a UFPLS would reduce the transfer value.  From memory, I believe they apply it pro-rata between the capital value and the final bonus accrued so far but I have no confirmation of that as we have always moved them out of Pru plans as modern alternatives are nearly always cheaper and more flexible on methods.   

If she were not to be able to earn any further Final Bonus amounts by leaving her money invested then her future  investment returns will be more than halved.

It still accrues final bonus on the remaining capital value.

tacpot12

Thank you for the replies. They have helped me get my mind around the problem and the questions that need to be answered.

Farside71

Albermarle said:

We have a letter drafted to the Pru to (re) ask these questions, but this will take time to get an answer

From other threads it seems that post Covid, the customer service /response times from the Pru have been very poor.

Primarily because the current outsourcer was starting to fail pre COVID and has been a disaster since.  They should never have got rid of Capita