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Prudential With Profits fund

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As you might have seen on my other thread, I'm trying to draw up a 10 yr plan to retirement. Part of that includes sorting the pensions of my OH as well.  In pulling out all the paperwork we have discovered he has a modest pot of £55k, which is invested in a Prudential With Profits fund. It suggests its assumptions for growth are only 0.5% each year?  What is this "special" fund? It mentions Bonus payments and other strange features, yet has a very low growth projection when compared to other funds we have between us? 

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  • dunstonh
    dunstonh Posts: 119,707 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Combo Breaker
     It suggests its assumptions for growth are only 0.5% each year?
    You are misreading something. My gut is that you are reading that from a pension projection rather than Prudential actually saying that it will be 0.5% a year.
    Projection rates have to follow regulatory guidelines.  They are pessimistic and have to show a low (often negative) rate, nominal rate and high rate.   Most people get towards the high rate in long term periods but could be at the lower rate in short term periods.

     yet has a very low growth projection when compared to other funds we have between us? 
    Projection rates are synthetic.   They are not an indication of the likely return.    

    What is this "special" fund? It mentions Bonus payments and other strange features
    There are multiple versions over the decades.   Some have safeguarded benefits.  Some do not.    Those that do tend to have a lower growth rate as the value is in the safeguarded benefits.   Those that do not have safeguarded benefits tend to have a pretty steady rate of return at a relatively low cost.  However, there were periods when the cost was higher.   The IFA version was available cheaper than the Prudential sales force could sell their own product for example.

    What features yours has will depend on the age of the plan and what version it was.   
    Pru also retailed s226 RACs, S620, PPPs, AVCs, FSAVCs, COMPS, CIMPS, GPPPs and S32s over the years.  They also had a stakeholder pension for a period.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • Coppice10
    Coppice10 Posts: 48 Forumite
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    edited 15 January 2024 at 4:23PM
    @dunstonh
    I hope i am misreading and its entirely possible!  But on checking its states: "Based on assumptions, your final plan value in 2032 could be...£55,500.  Assumptions include: The value of the With-Profits fund will grow by 0.50% each year before charges. The growth rate has taken inflation into account and it has been calculated in line with prescribed methodology."

    This pension is pretty old, the first paperwork i can find is dated 1993 and references protected rights benefits and includes a form titled Contracted Out Employment from Inland Revenue....

    I'm just trying to establish if this With Profits fund is worth sticking with if its growth rate is projected to be so low. It states the plan value is £25k, and the final bonus is £36k with a MVR of £1.5K.

    Edit - Only the statement from nov 23 shows a growth of 0.5%. The three years prior all cited an assumption of 3.5%!

  • dunstonh
    dunstonh Posts: 119,707 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Combo Breaker
    I hope i am misreading and its entirely possible!  But on checking its states: "Based on assumptions, your final plan value in 2032 could be...£55,500.  Assumptions include: The value of the With-Profits fund will grow by 0.50% each year before charges. The growth rate has taken inflation into account and it has been calculated in line with prescribed methodology."
    It is what I thought.  And yes, you are misreading what that means.

    Assumptions are synthetic.  They do not reflect the actual returns of the fund.  This goes for all pension projections.

    Some plans could have projections that overstate their likely outcome.  Some have projections that will understate their likely outcome.

    The key thing is not to use the projections with any pension as a means to checking the expected growth rates of the funds held.

    This pension is pretty old, the first paperwork i can find is dated 1993 
    Pru had guaranteed annuity rates on their plans up until the early 90s.   So, it could be quite a valuable plan if it has those.   However, from memory, they didn't use them with contracted out plans.  Only where contributions were being made.

    I'm just trying to establish if this With Profits fund is worth sticking with if its growth rate is projected to be so low. It states the plan value is £25k, and the final bonus is £36k with a MVR of £1.5K.

    The Pru plans that used the WP fund from the 90s to the very early 2000s were often quite good for lower risk investments as the AMC was typically around 1% but has some degree of capital protection on the value.   So, whilst a 100% equity based fund would be expected to perform more over the long term (whilst having significant periodic losses in between), the Pru WP fund was a steady eddie.     Keeping the Pru pension as a cautious side of the portfolio whilst using others to be more aggressive can often be a good mix.

    Pru don't like reducing the final bonuses much. They prefer to levy an MVR to hit those that transfer out on the expectation that MVRs are temporary.   If the MVR is in place at the scheme retirement age, they waive the MVR.  
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
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