Pru's with-profits fund performance outstrips rivals
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Prudential’s with-profits fund returned 18.7 per cent gross in 2009, while Aviva’s with-profits fund returned 9 per cent.
But Aviva says Prudential’s strong performance has not filtered through to customers with a 10 year bond return of 4 per cent, compared to Aviva’s 6.4 per cent payout last year.
Prudential is maintaining annual bonuses on all personal pensions, bonds and conventional with-profits products.
Most personal pensions will recieve 3 per cent while unitised corporate pensions will get a bonus of 3.25 per cent.
The firm applies market value reductions on a case by case basis and says this approach remains unchanged.
Prudential has shifted a significant amount out of equities into fixed interest over the year.
Equity content has fallen from 51 per cent in December 2008 to 37 per cent in December 2009, fixed interest has gone up from 29 per cent to 40 per cent over the same period.
Sales of with-profits bonds increased 36 per cent to £101m on an annual premium equivilent basis compared to 2008.
Chief actuary David Belsham says: “Prudential’s with-profits has yet again delivered what we said it would - good annualised returns for our customers over the medium to long-term.
“Our consistent approach to smoothing and bonus setting has served our policyholders well, protecting them from the full impact of volatile investment conditions while giving them the confidence of knowing that their savings are invested in a financially strong and well-managed fund.The bonuses we are announcing today are prudent and will protect the ongoing interests of our current and future policyholders.”
Aviva head of marketing Richard Kelsall says: “Prudential’s underlying funds have had good performance but looking at their payouts to customers that has not been passed on.
“They are quoting a fund return of 18.7 per cent but their 10 year bond return is 4 per cent. We passed on 6.4 per cent last year. Both our fund and their fund are performing well but Prudential is certainly not performing three times as well when it comes to customer payouts.”
Hargreaves Lansdown pensions analyst Laith Khalaf says: “The Prudential results cast a long shadow on the returns achieved by other with-profits providers, in particular Aviva who managed a 9 per cent 2009 return against Prudential’s 18.7 per cent before tax.
“As ever with with-profits there remains the question of how much of the good stuff is trickling down to policyholders.”
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Readers' comments (4)
Anonymous | 26 Feb 2010 3:13 pm
Aviva Bonds went up by 6.4% in 2009 (net of tax). Pru have said that their Bond values increased by only 4% in 2009. I know where I'd rather have been. Its OK to get a good fund performance but if this isn't being passed on to customers ......
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John Blackmore | 26 Feb 2010 8:31 pm
£10,000 policy with each company taken out just over 17 years ago.
Aviva sv today £30,686 = 6.75% pa
Prudential sv today £33,066 = 7.28% pa
I would have thought that most people would have been happy with either ?
I also wonder how many have been advised to abandon ship over the last few years ?
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Miles Hendy | 27 Feb 2010 12:01 pm
I would urge extreme caution in how you compare Aviva's past performance with Prudential's.
Aviva's 10 year With Profits Bond performance includes 3 Special Bonuses totaling 10.7% which cannot be repeated by policyholder's who accepted the reattribution offer. These Special Bonuses are not a feature of good returns; they are a feature of redistributing some of the money in the Inherited Estate as part of the strategy for giving shareholders the green light to carry out last year's reattribution.
Aviva are also quoting the 10th anniversary return which includes a 10th anniversary guarantee figure. Again, this is not a feature of performance but a feature of a guarantee that policyholders would be well advised to understand that it only has a value if they cash-in the investment (a point to which Richard Kelsall of Aviva has put himself on record agreeing to).
Ultimately the with-profits actuary is targetting to pay investors back their fair share of the fund (their "asset share"). Where due to the nature of guarantees the statement value is too high relative to asset share Aviva will reduce the bonus rate so that eventually asset share catches up (see page 3, point 4 of Aviva's annual statement: http://bit.ly/bDlcMn).
Critically, while Aviva are bragging about a past performance outstripping Prudential's, you must understand that it is asset share that will ultimately determine returns (if through poor understanding you remain in the fund and turn down thousands of pounds by not cashing in on this anniversary date) and tucked away on page 5 of Aviva's annual statement, point 7 in the small print is the truth about asset share growth over 10 years - £10,000 has grown to £12,158; an annualised return of 1.97%. And that includes three never-to-be-repeated Special Bonuses.
So in response to the anonymous poster above, I certainly know which fund I'd rather my clients' money was in.
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Anonymous | 20 Mar 2010 6:31 pm
A pity about the slashing of terminal bonuses in the Prudential With Profits fund though.
I was just about to arrange my pension annuity when a letter from the Pru advised me of imminent bonuses to be awarded on March 15th. My decision to delay my pension until then resulted in a lower pension pot. On contacting the Pru on the said date I was informed that a bonus had been awarded but at the same time my terminal bonus had been cut by approximately 20%. Thanks to the Pru for such a 'helpful' and costly letter.
The fund is apparently 'underperforming' even though it returned 18.7%. No explanation is of course necessary on the Pru's part despite these inconsistencies.
I realise that terminal bonuses can go up as well as down but my decision to delay, which was based on the receipt of the Pru's letter, has had a sreious impact on my pension fund.
Needless to say I will be exercising my 'open market option' and hope to find a pension provider with a greater sense of fairplay then the Pru.
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