AVC  NEWS


 

Important Information:  Update on AVCs for members invested in the Equitable Life Building Society Fund. - MAY 2008

 

I note from our records you hold investments in the Equitable Life Building Society Fund.

 

As you are aware the Equitable Life Building Society Fund has been managed by Halifax Life since 2001.  Halifax Life has been advised by Nationwide Building Society (with whom Equitable Life Building Society invests), that Nationwide Building Society has withdrawn from the AVC market from the end of February 2008.

 

Equitable Life has agreed that the funds currently held in their Building Society Fund can be transferred to the Bank of Scotland.   Neither Equitable Life nor Bank of Scotland will make any charge in respect of such transfers.

 

The Bank of Scotland deposit account provides capital security and a return linked to the Bank of England Base Rate.  The account was compared with a number of similar accounts available in the market which confirmed that the rate available on the Bank of Scotland’s account (currently 5%) is in line with or greater than many similar accounts.

 

The account offered by Bank of Scotland is a Corporate Deposit Account with the following features:

 

 

Equitable Life are also taking this opportunity to rename the Building Society Fund to more accurately reflect its purpose.  With immediate effect it will be known as the Equitable Life Deposit Account Fund, and their documentation and outputs will be amended over the coming months to reflect this change.
 

There is no need for you to take any action regarding this change, although you should satisfy yourself that the Deposit Account Fund is the correct option for any AVC investment you have previously held in the Equitable Life Building Society Fund. 

 

Prudential, our other in-house AVC provider also has a Deposit Fund investment option available.  The enclosed leaflet explains and provides an understanding of the Prudential Deposit Fund.  The current Prudential Deposit Fund rate is 5% gross per annum.  This fund currently tracks the Bank of England base rate.

 

If you wish to transfer your AVC fund from Equitable Life to Prudential please contact Carole McSherry on Belfast 028 90768025 ext. 243 who will send you the necessary forms for completion.  There is currently no charge for members who elect to transfer out of the Equitable Life Building Society (deposit) fund to Prudential.

 

It should be noted, however, that there is no guarantee that our other AVC provider, Prudential, will perform better than the funds available through the Equitable Life policy. I would add that we do review the fund performance of Prudential on a regular basis.


Prudential AVC Information Note - July 2006

 

 

Dear Member

 

 

Announcement to Members with Additional Voluntary Contributions (AVCs) held in Prudential Funds

 

 

The Committee, in consultation with its advisers, Hewitt, Bacon and Woodrow, has recently completed its annual review of the Scheme’s AVC arrangement with Prudential. The Committee is happy to retain Prudential as its AVC provider. This letter is to inform existing AVC members of information arising from that review which may influence your investment decision.

 

The letter includes the details of the risk ratings and management charges for all of the AVC funds (Annex A). In conjunction with this list, and the performance report you will have received directly from the Prudential, you may wish to ensure you are content with the fund you invest in.

 

In addition, this letter includes specific information on the following funds (Annex B):-

 

 

Fund Type

 

Summary of Information

Prudential With-Profits Fund

 

Advisers feel that With-Profits funds in general are not transparent and have higher management charges

 

Prudential Deposit Fund

 

This fund is not a Building Society type cash fund as the name might suggest but is part of the With-Profits fund

 

Deutsche Asset Management (now known as Aberdeen Asset Management [AAM]) Funds

 

Advisers have concerns over the fund managers' performance and investment processes

 

Prudential Passive Funds

 

Advisers have concerns about the investment process

 


Making Investment Decisions

 

As with any choice of investments, no one can predict with certainty which fund will offer the best return. When you compare Prudential’s funds, you need to decide which investment is most suitable for your needs. Often this will depend upon how near or how far you are from retirement.

 

 

Any investment decision is a personal one, reflecting your financial circumstances, approach to investment and attitude to risk. If you are in any doubt, you are recommended to get independent financial advice. The Committee and its advisers cannot give you financial advice. If you do not already use a financial adviser, IFA Promotions can give you details of an independent financial adviser in your area. You can contact them at:

 

IFA Promotions Limited                         Tel        0117 971 1177 or 0800 085 3250

17 – 19 Emery Road                              Fax:      0117 972 4509

Brislington                                             Email: ifap_mail@orchestrabristol.co.uk

Bristol     BS4 5PF                                 Internet: www.unbiased.co.uk

 

If you require more information, the NILGOSC Members’ Team will try to answer your questions, but please remember that they cannot give you financial advice about your investments. They can be contacted on 028 9076 8025 or by email at info@nilgosc.org.uk 

 

Fact sheets on each of the funds offered by Prudential are available on its website at:

www.pru.co.uk/content/memberfactsheets/.

 

If you wish to change your investment, please contact the Prudential Customer Service helpline on 0845 6000 343.

 

The transfer value of your funds will be based on the value of the units you hold on the date of transfer. There may be a small cost involved in the transfer of your units, which reflects the cost of trading in the underlying investments rather than being an explicit charge levied by Prudential for making the change. Overall, you should not notice any cost associated with transferring, unless Prudential introduce a Market Value Reduction (MVR) to transfers from the With-Profits Fund, in which case you will be advised of the amount of the MVR before making a final decision to transfer.

 

Yours sincerely,

 

Lynda White

 

Lynda White (Mrs)

Pensions Manager

 

----------------------------

 

Annex A

Available Prudential Funds

 

The funds currently available under the LGPS(NI) AVC Scheme and their annual management charges are listed in the table below. Prudential intends to make additional funds available later in the year, which the Committee will assess and decide whether to add them to the options available under the Scheme.

 

 

Fund

 Risk Rating

Ann Mgt Charge

Funds refered to in Annex B

 

 

Prudential With-Profits

Medium

1% **

Prudential Deposit

Low

n/a *

AAM Balanced Managed ex Property

Medium

0.85%

AAM North American Equity

High

0.85%

AAM UK Equity

High

0.85%

Prudential Long-Term Growth Passive

High

0.65%

Prudential Overseas Equity Passive

High

0.65%

Prudential Pre-Retirement Passive

Low

0.65%

Prudential Retirement Protection Passive

Low

0.75%

Prudential UK Equity Passive

High

0.65%

Equity funds

 

 

BGI (60/40) Global Equity Index

High

0.75%

BGI UK Equity Index

High

0.75%

Prudential Equity

High

0.75%

Prudential UK Specialist Equity

 High

0.75%

Prudential Global Equity

High

0.75%

Prudential International Equity

High

0.75%

Prudential Socially Responsible

High

0.75%

Bonds and fixed interest securities

 

 

Prudential Fixed Interest

Low

0.75%

Prudential Index-Linked

Low

0.75%

Prudential Corporate Bond

Medium

0.75%

Other

 

 

Prudential Discretionary (mostly equities, some bonds and cash)

Medium

0.75%

Prudential Cash

Low

0.75%

Prudential Property

High

0.75%

Lifestyle Options

High

variable

 

* Prudential does not apply an explicit charge to the Deposit Fund but instead takes account of the charge in the interest rate it declares.

** Prudential does not apply an explicit charge to the With-Profits Fund but instead takes account of the charge in the bonus rate it declares. This is currently expected to be 1% a year, assuming future investment returns in the With-Profits Fund are 7% a year.

 

There are also three Lifestyle options which initially invest in the Prudential UK Equity Passive Fund and switch into the Retirement Protection Fund starting six, eight or ten years before retirement dependent on which option is chosen. The charge will depend on which funds you are invested in and the proportion invested in each.


Annex B

Information on Specific Funds

 

 

Fund Type:       Prudential With-Profits Fund

 

Historically, this has been a popular choice with members and the Prudential With-Profits Fund has provided good returns over the years compared to other with-profits funds. However, changes in the industry in recent years mean that the way with-profits funds are now run and the prospects for future bonuses from them are significantly different than when the fund was first introduced. Historically their objectives were to provide a competitive level of returns for a long term investment, however there is now a much greater focus on paying out any guaranteed level of benefits applicable under a policy rather than trying to generate returns over and above such amounts. This means that bonus rates on with-profits policies are expected to be lower in the future than may have been achieved in the past.

 

One of the main aims of with-profits funds is to try to give continual investment returns by smoothing peaks and troughs experienced in investment markets. Smoothing works by holding back some of the returns when the underlying performance is good (e.g. when stock markets perform well) and using these to boost payouts when the underlying performance is poor. During 2005 the gross investment return achieved by the With-Profits Fund was 20%, whilst the regular bonus rate was 3%.

 

However, there are a number of issues associated with with-profits investing:

 

 

 

 

 

 

 

 

 

Date contributions paid

Guaranteed rate of interest (p.a.)

Before 1 April 1996

4.75% *

Between 1 April 1996 and 5 April 2003

2.5%

After 6 April 2003

0.01%

 

* Few, if any, members of the LGPS(NI) qualify for this rate.

 

From 15 March 2006 the regular bonus is 3% p.a. on the part of your fund not entitled to the guaranteed rate of return of 4.75% p.a. There are no penalties for ceasing contributions.

 

A Market Value Reduction (MVR) may apply in future on switches out of the Prudential With-Profits Fund, although Prudential told us that on 28 March 2006 an MVR would not have been applied. MVRs are widely used by with-profits funds to ensure that payouts are not excessive to particular members or groups of members. They are calculated on a daily basis and the situation could therefore change. If you decide to transfer your fund, Prudential will inform you before disinvesting if an MVR is to be applied and give you the option to change your mind.

 

Since 2000 Prudential has reduced the proportion of equities held in its With-Profits portfolio from 70% to 59% at the end of 2005.

 

 

Fund Type:       Prudential Deposit Fund

 

The Prudential Deposit Fund appears similar to a building society account, in that it pays a fixed rate of interest on your investment. However, it has been brought to the Committee’s attention that the Prudential Deposit Fund is not a ‘stand alone’ fund but is in fact a part of the Prudential’s With-Profits Fund.

 

The Prudential With-Profits Fund is one of the stronger with-profits funds in the market. However, the underlying assets in the With-Profits Fund (and thus the assets supporting the cash in the Deposit Fund) are mainly equities and bonds and therefore this slightly increases the risk associated with the fund as compared to a normal building society fund. However, to put the position into perspective, the Deposit Fund as at 31 December 2004 amounted to approximately £120 million out of the total With-Profits Fund of £60,000 million (i.e. 0.2% of the With-Profits Fund). Although the risk is slightly higher, the returns produced by the Deposit Fund as shown in the following table, have been higher than the average (median) cash fund in a survey carried out by the Committee’s advisers.  The first bar shows the performance of the Prudential Cash Fund, which is similar to a building society account and therefore slightly less risky than the Deposit Fund, over the same periods.

 

The Committee’s advisers do not currently envisage any problems with the Committee retaining the investment in the Deposit Fund, but it is only right that you should be made aware of these issues.

 

 

 

Fund Type:       Deutsche Asset Management Funds (DeAM)/Aberdeen Asset Management (AAM) Funds

 

Specific Fund Names

AAM Balanced Managed Ex Property

AAM North American Property

AAM UK Equity

 

The Committee’s advisers have had long-held concerns about DeAM which include concerns about how investment decisions are made, the regular changes made to the investment process in an attempt to improve performance, and the significant staff turnover that it has experienced. It also believed that some portfolio managers had lost confidence in their abilities and in the DeAM research base.

 

On 30 September 2005 Aberdeen Asset Management (AAM) completed the purchase of the majority of DeAM UK which includes the equity and fixed income teams. AAM has recognised the clear challenges presented by DeAM’s equity business. Following the purchase AAM took over responsibility for the management of the equity funds which started a transition to AAM’s investment process and the departure of the majority of the senior DeAM equity managers. All DeAM funds have been rebranded as AAM funds. The Committee’s advisers continue to be concerned with the equity funds, specifically UK and Balanced Managed, as the AAM equity investment team lacks experience in some markets and of using the investment process for the type of funds inherited from DeAM. AAM is attempting to modify its process in order to manage the former DeAM funds.

 

 

Fund Type:       Prudential Passive Funds

 

Specific Fund Names

Prudential Long-Term Growth Passive

Prudential Overseas Equity Passive

Prudential Pre-Retirement Passive

Prudential Retirement Protection Passive

Prudential UK Equity Passive

 

A passive fund aims to perform in line with the index it tracks. The ability of passive managers to achieve their objectives rests mostly on the size of the assets involved. The larger the pool of assets, the easier it is to achieve close tracking of market indices and keep costs down. Prudential’s passive management operation is small and the investment process used is more reliant on the manager’s stock picking ability, as the fund is not big enough to fully replicate the index or to sufficiently reduce costs. The Committee’s advisers’ research has led them to believe that Prudential’s stock picking includes an element of active stock selection which is against the philosophy of passive management. There are also concerns about the effectiveness of the risk management controls and that performance is unlikely to track the index over either the short or long term due to these concerns.

 

 

 

 

This update gives our advisers’ understanding of the situation at March 2006. Features and issues will change without notice. It has been based on information that is available to the public, research conducted by our advisers and other information believed to be reliable. This update gives an overview of the situation at Prudential to help you, but you should not take it as financial advice.


 

 


Additional Voluntary Contributions Information Note – September 2005

 

We have recently been notified by Equitable Life of a change in the interest rate applicable to their Building Society Fund.

 

With effect from 1 September 2005 the rate of interest applicable to the Equitable Life Building Society Fund changed to 3.85% gross per annum (3.89% annual equivalent rate).

 

The Local Government Pension Scheme (Northern Ireland) has an additional AVC provider, the Prudential.  The Prudential has a Deposit Fund that operates in a similar way to the Building Society Fund.  The interest rate applicable to the Prudential Deposit fund is currently 4.5%.

 

If you are interested in transferring your AVC funds to the Prudential please contact the NILGOSC Members Section on 028 9076 8025 and you will be sent the appropriate forms for completion.

 

 


EQUITABLE LIFE INFORMATION NOTE – JUNE 2005

 

 

 

 

Dear

 

Important information: Update on Equitable Life AVCs for members invested in the With Profits, Managed, Lifestyle and/or Deposit Fund

 

This note contains important information relating to your Additional Voluntary Contribution (AVC) plan with Equitable Life so please take some time to read through the information and contact us with any queries.

 

1. Annual Statement

Your annual benefit statement is enclosed for your attention. This will detail any contributions paid during the last 12 months, the notional value of your AVC fund and the transfer value available at 1 April 2005.

 

2. Latest information from our investment adviser

NILGOSC has received the latest views from our adviser, Hewitt Bacon & Woodrow, following the publication of Equitable Life’s annual report and accounts for 2004. The key points are: -

 


Our advisers have therefore recommended that:

 

·        No further contributions to any of the Equitable Life funds should be made with immediate effect. Most members have already re-directed their contributions to our alternative AVC provider, Prudential, and we will be happy to assist you to do this if you wish to continue to pay AVCs.

 

·        Investors in either the Managed Fund or Deposit Fund should seriously consider transferring these to one of the Prudential funds. Prudential will make no initial charge for receiving such transfers and there will be no penalty applied for transferring by Equitable Life. The current interest rate payable on the Deposit Fund with Equitable Life is 4.1%. The Prudential Deposit Fund currently pays a rate of interest in line with the Bank of England base rate which is 4.75% per annum. This current practice is not guaranteed.

 

·        With Profits investors, especially those who are some years away from retirement, should also consider transferring to one of the Prudential Funds.

Equitable Life will reduce your policy value by 11.1% if you transfer. However if you remain with Equitable Life, the Society has stated that “no provision is made for future discretionary bonuses” and “it is the Society’s intention that any future bonuses will be in a non-guaranteed form.” Future returns on your investment are therefore likely to be limited if you continue to invest with Equitable Life.

 

It should be noted however that there is no guarantee that our AVC provider, Prudential, will perform better than the funds available through the Equitable Life policy.  We review the fund performance of Prudential on a regular basis and since their appointment in 2001 their performance has been satisfactory.

 

3. What happens next – action required by you

 

·        If you are still making regular contributions to Equitable

·        Please complete the attached option form to show which option you wish to take.  Your contributions to Equitable Life will continue unless you instruct us otherwise, however we suggest that you seriously consider our adviser’s concerns about the risk of continuing payments to Equitable.  If you wish to re-direct future AVC payments to Prudential please show this on the option form and you will be contacted separately to arrange completion of the Prudential application form and to provide information that will help you decide in which of their funds you wish to invest.

 

·        If you have an existing fund with Equitable

·        We will not automatically transfer your current fund with Equitable to Prudential however we suggest that you seriously consider our adviser’s concerns about the risk of leaving your AVC investment with Equitable. If you wish to transfer please tick the transfer box on the enclosed form and return it to us by 30th June. You will then be contacted to arrange completion of the Prudential application form and to provide information that will help you decide which of their fund you wish to invest.




If we do not receive your completed form, we will assume you have decided to leave your AVCs with Equitable Life.

 

You can transfer your AVCs at any time to our alternative AVC provider. The transfer value is not guaranteed and will be based on the terms at that time. Equitable Life can change these terms at any time without notice.

 

Finally it is important that you read the notes at the foot of this page.  We will keep you informed of any further developments.

 

Yours sincerely

 

DW Morrice

Fund Secretary

Notes

1.       This update gives our advisers’ understanding of the situation at May 2005. Features and issues will change without notice. It has been based on information that is available to the public, research conducted by our advisers and other information believed to be reliable. This update gives an overview of the situation at Equitable Life to help you, but you should not take it as financial advice.

 

2.