This time last year the eyes of the advice world turned on Port Talbot, South Wales, and on the fate of steelworkers who had been advised to cash in their valuable defined benefit (DB) pension entitlements.
What emerged was a woeful tale of how advisers and unregulated introducers had convinced steelworkers to invest in risky, illiquid and high charging funds, often with dire consequences.
But many steelworkers were also invested in more vanilla products, such as the popular PruFunds range.
The PruFunds' tremendous growth, it is now up to £42.9 billion in assets, has in part been driven by being ‘very strong in pension transfers', Clare Bousfield, Prudential’s UK insurance chief executive, said in 2017.
But now some steelworkers have expressed ‘surprise’ by recent unit-price adjustments that have hit the PruFunds range, on the back of torrid equity markets.
Earlier this week 18 out of 56 funds in the PruFunds saw downward unit-price adjustments after their latest asset valuation reviews (see box-out below for how this works).
Prudential said these falls in unit price for the range were a result of both bond and equity markets falling in the last few weeks. The biggest drop came with the PruFund 0-30 Pension Fund (Retirement Account) Series D which saw a 3.4% fall.
Eugen Neagu (pictured below), head of financial planning at Montfort and part of the adviser Operation Chive initiative which helped British Steel members with transfer problems, said the drop has come up in conversations and forums in the past few days.
‘I don’t think steelworkers have been complaining but they were discussing it, and they were a bit surprised,’ Neagu said. ‘The majority of them were aware that an adjustment could happen in case of poor investment performance for underlying assets. Some of them were not told by their advisers how exactly the fund works but some had this explained better from the start.’
The steelworkers' queries show its not just risky products that can pose problems for pension transfer advice. Giving up a guaranteed income means clients must understand the extra risk they are taking on at the outset. It also shows the importance of ongoing advice.
Al Rush, director of Echelon Wealthcare and Operation Chive leader, also said steelworkers had also enquired to him about unit price drops this week.
Rush said the key point is about how their IFAs originally communicated the expected growth rates of the fund to their clients.
‘It depends on how it was sold, if it was sold as a fixed-interest proposition then that is wrong,' he said. 'If it was sold as a managed fund that has the potential to dampen down volatility then that is okay.’
He said if steelworkers are now unhappy with the uncertainty of a unit-price drop then they should not have been advised to transfer out of their final salary scheme in the first place.
Paul Fidell, senior business development manager for investments at Prudential, said: ‘Across the PruFund range, the majority of the 56 funds have performed well with no unit price adjustments required at this recent quarterly review. For the 18 funds where a downward unit price adjustment was necessary, the lowest reduction was 2% and the highest 3.4%. These reductions are attributable to the falls in both equity and bond markets over recent months.
‘For those versions that are affected, it is important to not just consider the size of the UPA (unit-price adjustment) in isolation, but to look at how this leaves the fund positioned in relative terms. There is a clear picture of all versions of PruFund significantly outperforming many unsmoothed funds with similar asset mixes over the last 12 months.
'Indeed, over this period many unsmoothed funds will be showing negative returns for investors whereas every version of PruFund is showing positive returns over the same time frame.’