Market Value Reduction confusion

SouthCoastBoy

Got a couple of questions about a letter I have just received.

I have a guaranteed unitised with-profit series 1 fund of 4% per annum up to aged 75.

i have just received the following summary.
Intended Retirement Date Mar 2030
Pension Savings Value as at 27 Dec 2024: £22805.32

It then states "At Pension Savings Value date shown a Market Value Reduction of £11,979.73 would have been deducted from the Pension Savings Value.

Does this mean in 2030 this will get added back on?

In the literature supplied it also states, "An MVR is usually applied when the current value of your investment is lower than the value of the guaranteed benefits available when you access the pension savings"

If the current value is lower than the guaranteed value why is it being reduced further? Shouldn't it be increased so it meets the guaranteed minimum value?

I'm confused as to how much I am likely to get in 2030, will it be around 22805, increasing by 4% each year until 2030?

Thanks in advance.

dunstonh

Does this mean in 2030 this will get added back on?

Unlikely.  However, there are some plans that have an MVR free window where if you don't exit the pension in that window the MVR can be applied again.

Assuming 2030 is your age 75, then most of these plans cannot be held beyond 75 and need transferring before then (or an annuity purchased).  So, they wouldn't get the chance to add them back on as they need to be closed by age 75.

If the current value is lower than the guaranteed value why is it being reduced further? Shouldn't it be increased so it meets the guaranteed minimum value?

The underlying fund is invested and goes up and down.    Typically funds with guaranteed growth rates are invested in low volatility funds.  However, since Nov 2021, most of these funds have suffered their worst period in generations and in some cases over 100 years.  

It can only increase to meet the guaranteed minimum value if the underlying assets grow.

I'm confused as to how much I am likely to get in 2030, will it be around 22805, increasing by 4% each year until 2030?

Often the 4% is the rate before charges.  So, in reality, the net return could be 3% or lower (some of these old plans are charged on pre 2000 charges rates where as modern plans are much cheaper).

SouthCoastBoy

Thanks for the response, I will be under 75 in 2030. 

From what you have said it seems like I should be planning for around 25 to 27k in 2030, seems reasonable?

I still don't understand the guaranteed growth that doesn't appear to be guaranteed.

There is a final bonus applicable, so I live in hope that may be I get to 30k.

dunstonh

I still don't understand the guaranteed growth that doesn't appear to be guaranteed. 

MVRs are effectively a cost for exiting the fund at a time when the underlying fund is worth less than your guarantee value.    However, there are MVR free exit points.  So, as long as you stick to those, there is no MVR.

There is a final bonus applicable, so I live in hope that may be I get to 30k.

Most of these have little or no final bonus.   Final bonuses accure as you go along.  You can look at the current value and the transfer value to see if there is any final bonus accrued to date.    If they are the same (or the only difference is the MVR), then you have no final bonus.

SouthCoastBoy

Thks for the detailed information, much appreciated