TPS - AVC Performance

tony4147

My wife is a school teacher and is in the TPS, as she is a HRT payer I convinced her a few years ago to do an AVC, this is done via Prudential, the performance over the years has been quite poor but last year has been worst than others. 

She pays £300/month (£3600/yr) into the AVC, only this year the pension is worth £4,200 less than last year. 

The pension is invested in the following funds 20% in ea -
Prudential Fixed Interest 
Prudential Index-Linked
Prudential International Equity
Prudential S3 Discretionary Pen
Prudential S3 Long-Term Gilt Passive Pen 

She talking about stopping further payments and instead investing the £180/month after paying tax into a Cash ISA as at least she will see it go upwards, currently 5.2%, yep she understands the erosion of inflation, but after this year she’s has concerns at paying into the AVC to find it worth less than it was last year. 

dunstonh

The pension is invested in the following funds 20% in ea -

Prudential Fixed Interest 
Prudential Index-Linked
Prudential International Equity
Prudential S3 Discretionary Pen
Prudential S3 Long-Term Gilt Passive Pen 

Well its clear to see why performance hasnt been in line with expectation.   
60% in gilts and bonds directly.  
20% in a multi-asset fund with circa 55% equities.
20% in global equity.

The selection is overweight in areas that have had their worst performance in generations (or even over 100 years in some of it).

She talking about stopping further payments and instead investing the £180/month after paying tax into a Cash ISA as at least she will see it go upwards, currently 5.2%, yep she understands the erosion of inflation, but after this year she’s has concerns at paying into the AVC to find it worth less than it was last year. 

That is not a logical change.   She is a higher rate taxpayer.  So, even with the short term losses, the AVC is beating cash in respect of her net contribution.

i.e. 100pm into the pension would equate to £60pm going into the ISA on a like for like basis.  if the pension loses 15% in a year, she still has £85.  if the ISA gets 5% then she has £63 in the ISA.   So, the pension still easily beats the ISA.

The problem is not the tax wrapper.   Its the decision making of whoever built the portfolio of funds.   The decision to go bond/gilt heavy and not much in the stockmarket at a time that gilts/bonds were overpriced and unwound during 2022 (and some of 2023) was not a good one.

Albermarle

tony4147 said:

My wife is a school teacher and is in the TPS, as she is a HRT payer I convinced her a few years ago to do an AVC, this is done via Prudential, the performance over the years has been quite poor but last year has been worst than others. 

She pays £300/month (£3600/yr) into the AVC, only this year the pension is worth £4,200 less than last year. 

The pension is invested in the following funds 20% in ea -
Prudential Fixed Interest 
Prudential Index-Linked
Prudential International Equity
Prudential S3 Discretionary Pen
Prudential S3 Long-Term Gilt Passive Pen 

She talking about stopping further payments and instead investing the £180/month after paying tax into a Cash ISA as at least she will see it go upwards, currently 5.2%, yep she understands the erosion of inflation, but after this year she’s has concerns at paying into the AVC to find it worth less than it was last year. 

Ironically maybe, the portfolio of investments is too cautious. A more evenly balanced ( with less gilts/bonds and more equity) would still have not done so well over the last couple of years, but better.
Supposedly lower risk investments have suffered badly recently due to a rather unique set of circumstances.