Administration Costs
The day-to-day cost of administering your pension is currently paid for by Which?.
Prudential Investment Charges and Costs
The money in your Money Purchase Account and your Prudential AVC Account (if you have one) is invested in the Prudential With-profits Fund.
The costs of running the With-profits Fund incurred by the Prudential are deducted and what is left over (the profit) is then available to be paid to you and all the other investors. You get your share of the profits in the form of bonuses set by Prudential and added to your Account.
Prudential report that the investment management charge that they assume will be paid by members when they set the bonuses on their With-profits Fund is about 1% pa. This charge is not guaranteed.
Prudential also report that the With-profits Fund pays transaction costs of 0.05% per year. The transaction costs are in addition to the investment management charge paid by members. There are no explicit charges made on investment of contributions.
Hence your investment return is reduced by the management charge and transaction costs, which are allowed for and reflected in the annual bonus declaration.
If the money in your Money Purchase Account is withdrawn at any time except on your death or on your normal retirement date, Prudential are at liberty to reduce the amount paid out to reflect the current market value of the underlying investments. This is known as a Market Value Reduction (MVR). No MVRs were applied to members’ funds in the Scheme year ending 31 March 2023.
Value for Members Assessment
The Trustees are satisfied that the Scheme is priced competitively.
Each year the Trustees carry out an assessment of the extent to which charges and transaction costs borne by the Scheme’s members represent good value for the services that members receive.
It is widely accepted that value for members is difficult to assess and while there is guidance on suggested items to cover there is no prescribed method for assessment. The Trustees’ conclusion is based on the following considerations.
- Members entitled to benefits will receive either (i) a Final Salary Pension based on pensionable service and salary at the date they left the Scheme, or (ii) a Money Purchase Pension that can be provided from a Money Purchase Account that builds up from part of the employer and employee contributions, and is invested in Prudential’s With-profits Fund.
- Members do not pay directly for the administration or investment services that are used to deliver the benefits.
- The administration charges and transaction costs levied by Prudential are expected to provide value for members as their minimum benefit is at least the value of their defined benefit arrangement (the Final Salary Pension), while they potentially benefit from a better retirement income in the form of an annuity if that is higher (the Money Purchase Pension).
- It is unlikely for a similar arrangement - or one that provides better value - to be negotiated with another provider at a lower fee level.
- Prudential is differentiated amongst large insurance providers by its continued, active support of with-profits investments and the fund is highly rated by AKG Financial Analytics, who are the leading independent assessor of with-profits funds.
Prudential Additional Voluntary Contributions
The Trustees consider that Prudential AVC options offer value for those members seeking the guarantees offered by the With-Profits plan for the reasons outlined above.
Other Additional Voluntary Contributions
You may have made AVCs to Legal & General, Clerical Medical or Utmost Life (Equitable Life as was).
The Trustees did not consider that the Utmost Life and Clerical Medical AVCs offered value for members. These AVCs, along with the Legal & General AVCs, have been transferred to the Aviva Master Trust.
To find out more about the Value for Members Assessment, see the Chair’s Annual Statement.