LGPS / AVC / Prudential - At a loss!!

WhamBar1970

Hi

I thought it was about time I addressed this issue.  I started paying additional contributions to an AVC with Prudential in 2016.  I invested at a Medium Risk with:  Prudential S3 Index-Linked Pen and  Prudential S3 Long-Term Bond Pen.  I was unsure I have to admit how to invest it and very little advice is given.  I have contributed a total of £13,500 to date.  Contributions were off and on due to personal circumstances at the time.  My balance to date is now £8,900.59!!!.  Every time I check it, it seems to go down.  What am I to do?  Should I get a financial advisor for this little amount.  I could lose the lot by the time I retire. 
Any advice is appreciated.

  

eskbanker

How far away are you from accessing the pension and how did you decide that those funds were suitable for that timeframe?

dunstonh

I invested at a Medium Risk with:  Prudential S3 Index-Linked Pen and  Prudential S3 Long-Term Bond Pen. 

Both of those funds are typically used as part of a wider portfolio of funds with weightings to match a risk profile.  i..e the index linked fund forming the index linked gilts allocation and the long term bond forming part of the bonds allocation.
They are not designed to be held in isolation or with the rest of the portfolio missing.

 I was unsure I have to admit how to invest it and very little advice is given. 

Advice is given by advisers.   If you don't use an adviser, then you get no advice.    You chose to DIY.

 I have contributed a total of £13,500 to date.  Contributions were off and on due to personal circumstances at the time.  My balance to date is now £8,900.59!!!.  

That sounds in line with expectation.

What am I to do?  Should I get a financial advisor for this little amount.  I could lose the lot by the time I retire. 

You have invested very poorly.  You picked two parts of a portfolio that would have around 12 parts. eg: you would hold funds covering the following 12 areas:

UK equity,
US equity
European Equity
Japan Equity
Developed Asia Equity
Global emerging markets equity

Global short term bonds
Global bonds
index linked gilts
gilts
corporate bonds
short term money market.

Sadly, you picked just two of those areas and did so whilst going through the worst period in over 100 years for those two areas.    While the equities side has pretty much doubled over the last 7 years. The bond part is back to where it was 7 years ago.  And most of your contributions were made prior to the cliff edge that those two areas hit over Nov 21 to Oct 23.

They are unlikely to recover to pre-Nov 2021 pricing in terms of growth, but may eventually get back through income.   

The bottom line is that it was a very bad investment selection on your part.  It would be missale territory if it had been advised, but as you went DIY, you will have to take it on the chin.

You should look at the multi-asset funds they have to offer and select an appropriate one of those and not use funds designed to be held as part of a wider portfolio.

WhamBar1970

eskbanker said:

How far away are you from accessing the pension and how did you decide that those funds were suitable for that timeframe?

I am hoping to access this pension in 5years.  I have been told I need to start contributing again to change how I invest it.  When I originally signed up, there was basically a list to choose from and being so unsure with pensions/shares speak, I just took a chance, not thinking it would be such a loss.  I wish I had just paid the extra off my mortgage. 

dunstonh

When I originally signed up, there was basically a list to choose from and being so unsure with pensions/shares speak, I just took a chance, not thinking it would be such a loss.  I wish I had just paid the extra off my mortgage. 

The idea of investing was not a bad one.  You just did your DIY selection badly.  Indeed, you pretty much chose the two worst areas to be in during the worst period in over 100 years.     You couldn't have picked two worse investment areas.

As a broad guide, here are the returns of all the main areas over the last 7 years (I've left the area names out to avoid adding confusion):



You picked K & L. 

Most people have had those in their portfolio, but they would have had the other areas as well.

Hence, switching to a multi-asset fund that encompasses all areas, rather than just two, which happened to be the worst two.

However, if you were investing to buy an annuity when you retire, then its not all bad news.    The things that made gilts/bonds so poor in that period are also the things that have pushed annuity rates to their highest level in 18 years.

DRS1

The problem is if you cash in K and L and put it all in A then over the next 5 years A may plummet and K and L go up like a rocket.  Well that's what would happen if I did it.

5 years is not a good time period for investing - not really long enough.

And I am betting that you plan to use the AVC fund to boost your tax free lump sum when you take the LGPS pension so it is not as if you are going to be buying an annuity with it.  If you were then you might as well leave it where it is.

If you want to go for equities it is probably simplest to go for a world tracker (VWRP gets a lot of mentions on here) but for 5 years that may be too risky.  Maybe a multi asset fund is a better idea?

No-one knows what the future holds so you might do as well throwing a dart at pieces of paper with fund names on them as asking people on here where to put the money.  That is not to say that the people on here aren't very knowledgeable or don't have great investment ideas; just that no-one knows what will be the best investment over the next 5 years

DRS1

Global Equity Index Fund vs LifeStrategy: Which is best?
may be of interest

VXman

I had a Prudential AVC. I don't recall ever being given a choice of how to invest it - it just went into a 'with profits fund'. from what I understand this is a fairly safe but not particularly high performing fund but I was happy with the outcome. It certainly beat a savings account.

I don't know how the Prudential works now but surely there is the option of some fund that is professionally set up/balanced and set up at a certain risk profile chosen by the investor. That's the way so many self investing platforms work.

dunstonh

I had a Prudential AVC. I don't recall ever being given a choice of how to invest it - it just went into a 'with profits fund'. from what I understand this is a fairly safe but not particularly high performing fund but I was happy with the outcome. It certainly beat a savings account.

That was the original AVC.  It was a single fund offering.   Some years back they created a revised product that has the WP fund as the default option, a lifestyle option or manage your own selection from around 20 funds.

https://www.mandg.com/dam/pru/shared/documents/en/lavk10033.pdf

The available fund range is pretty rubbish in the manage your own category.  

Gary_Rogers414

I too have fallen into the same trap with the Pru, and only now realised my dilemma . I started investing into an AVC in November 2016, with a view to retiring next year at the age of 65. Unfortunately, I have no qualifications in finance and a limited knowledge of gilts and bonds. It would have been good if the Pru had contacted me in 2022 when the collapse started, to make me aware that my money was going into the Prudential S3 index products and so haemorrhaging money. I am now left with the decision as to whether to change my investment to a'lifestyle strategy' product or to hang on to the current investment past retirement date and hope S3 index products recover in a few years time? My quandary is will I loose even more money if I chose to swap the investment as it will undoubtedly start the clock again and will need some years to recover my loses?

dunstonh

 It would have been good if the Pru had contacted me in 2022 when the collapse started

It isn't their job.  It is your job.  You chose to leave the default fund, which has done very well.  You chose to invest heavily (hopefully not all of it as that would be bad investing) in an area that typically only has upto 5% allocated to it with most portfolios.

I don't know what made you select it but your decision was poor.  So, you cannot blame Pru.

t or to hang on to the current investment past retirement date and hope S3 index products recover in a few years time? 

Not going to happen.    the drop was the unwinding of the boom in index linked gilts following the credit crunch and it is now back in line with its long term average.




You can see how it went up far quicker than the historic norm and that was always going to unwind at some point.   Most thought it would be a much slower unwind but a perfect storm of events speeded it up .   It wont go back up to those past levels for probably several decades as it will rely on the yield to get there.   The conditions that allowed the boom had not happened for 300 years.   The conditions that caused the unwind are more typical of 1960s-1990s.

its worth noting that the Pru S3 Index linked fund has grown by 147.6% since May 2001.   For a non-equities fund, that is very good   And as bonds typically play out over decades,  long term holders have done nicely out of it, even with the unwinding of the credit crunch issues.  

I am now left with the decision as to whether to change my investment to a'lifestyle strategy' product

They tend to heavier in gilts. So, that would not aid the situation.

My quandary is will I loose even more money if I chose to swap the investment as it will undoubtedly start the clock again and will need some years to recover my loses?

That isn't how it works.

From peak to trough you have lost almost 50%.   So, you would need 100% gains to make that up.  That loss is bigger than any stockmarket crash in living memory.    It would need 10-20 years of stockmarket investing and hoping its avearge or better.