The Prudential TIP will allow investors access to a variety of pension funds including the range of PruFunds, whilst allowing the investor to remain in their current plan without the need to enforce a pension switch or transfer. The following explore why PruFund is being used so widely.
Income producer – Traditional drawdown portfolios weighted their asset allocations heavily towards cash, thus allowing income withdrawals to come from this as a stable alternative investment to the rest of the portfolio. This would avoid the risk of cashing in units at the wrong time from other asset classes. The difficulty with this strategy is cash has very low returns at present. However, advisers have the option of considering ‘smoothed’ investments to provide income for clients. By investing in a Prudential TIP investor can withdraw up to 7.5% of the original amount invested each year, though clearly withdrawals at this level are likely to reduce the value of the TIP over time. Prudential provides access to a Retirement Modeller on our adviser website, which allows scenarios to be modelled for clients.
Portfolio stabiliser – Advisers and investors are looking to provide diversification to portfolios for clients. Having a well-managed, highly diversified investment that has its returns smoothed means PruFund can often offer an alternative that could be uncorrelated to the clients’ other investments.
Death Benefits – Often legacy planning is an important consideration for clients when considering pension transfers. Investing in a TIP through a modern SIPP contract allows clients to notionally earmark some of the fund to provide flexible death benefit options to their beneficiaries.
Using TIP with blending & buckets – By combining PruFund with other asset classes some advisers are looking to manage market volatility and provide a drawdown investment experience to match the clients’ individual objectives. Often the portfolio is split with an element in cash to provide short term stability & immediate income needs. Then a proportion is invested in PruFund for the medium to longer term and then on top of that an allocation of funds is invested in a bespoke long-term strategy to potentially generate some Alpha. Often in these situations advisers have appointed a discretionary fund manager to utilise their investment expertise to complement the client’s other investments and help meet their objectives.
So in summary, if you have clients invested in SSASs or SIPPs and they want further information on
- Reducing exposure to volatility
- Taking income from their pensions
- Passing on death benefits
Speak to your account manager or take a look at PruAdviser.
The PruFund range of funds all invest in Prudential’s With-Profits Fund, which is one of the largest with-profits funds in the UK. However, there are differences across the range of PruFund funds in their objectives and mix of assets, and how PruFund delivers returns to investors when compared to other With-Profits business, which means the returns received by investors will vary by fund choice.
Please remember that past performance is not a reliable indicator of future performance.
The value of an investment can go down as well as up, so your clients could get back less than they put in. This article is just for UK Advisers.