Prudential UK Property S1 & S3 funds – May 2021 update

We are closing the UK Property Workplace Pension funds

This page, including the Questions and Answers section, was last reviewed in May 2021. No material changes have been made to the previous version (April 2021) but two questions (Q21 and Q22) have been added.

We regularly review the funds we offer, and as a result we have decided to close the Prudential UK Property S1 and S3 funds (the “property fund(s)”). The effective date of this depends on the fund series (S1 or S3) and the type of pension scheme. The dates are:

  • 24 May 2021 for the S3 fund when accessed via:
    • GPP plans with plan numbers ranging from GPP4000 to GPP4169
    • MPP plans with plan numbers ranging from MPP1001 to MPP1044 and from MPP2001 to MPP2026
  • 9 June 2021 – for the S1 fund, where we have not received an instruction for an alternative fund from the Trustees 
  • 22 June 2021 – for the S3 fund when accessed through plans with numbers other than those noted above

Our letters to customers show the applicable plan number.

The funds will remain in deferral until they are closed. You can read more about what this means in question 17 in the Questions and Answers section at the bottom of this page.

Our decision to close these funds is based on our concern over the large number of withdrawal requests from the underlying fund, the M&G PP UK Property fund, creating pressures to sell properties to fund those withdrawals. These pressures are likely to affect the property funds’ performance over the next five years. The number of withdrawals from the underlying fund also means it would be unlikely that the deferral on the property funds would be lifted soon.

For these reasons we’ve decided these funds are no longer suitable options within our Workplace Pension fund range, and this means investments can no longer remain in them. We believe this is the best outcome for our customers’ investments, given the outlook for the property funds.

During December 2020 and January 2021 we wrote to scheme trustees, employers and advisers to provide them with advance notice of the closure so they could carry out any due diligence work they need to do on the appropriateness for their members of the alternative fund we have proposed.

We have also written to all our customers who are invested in the property funds with details of the closure, the fund we or their scheme Trustees propose moving their investment to, and what the next steps will be. The proposed fund will not be another property fund.

Throughout the closure process this page will continue to be regularly reviewed and updated.

Background on the ongoing deferral of the property funds

From 3 June 2019, some types of withdrawals from the property funds have been deferred. This followed the underlying fund, which the property funds invest in, going into deferral due to liquidity pressures.

After further consideration, from 1 September 2019, and backdated to 3 June, we also decided not to accept new contributions into the property fund at the moment and are redirecting any regular contributions to the Prudential Cash fund (the “cash fund”). This means that any regular contributions after 3 June 2019 are not subject to the deferrals in place on withdrawals from the property funds.

We wrote to our customers invested in the property funds when the restrictions were introduced, explaining what these meant for them and their investment.

In light of general market conditions in 2020 and unconnected to the deferral, the material uncertainty clause was subsequently applied to the unit prices of the underlying fund. We have previously advised that this clause has since been removed. However, the property funds still remain in deferral. This will remain the case until the property funds are closed.

If you’re considering making changes to your plan, or you have any concerns, please call us on 0345 600 0343 - we’re happy to help. From abroad you can phone us on (+) 44 1786 448844. We’re open 8.30am to 6pm Monday to Friday (apart from bank holidays).

When a fund goes into deferral it does this to protect customers remaining in the fund and to ensure the value of the underlying assets within the fund are managed appropriately. We’ve seen periods in the past where the fund has been deferred for a short period of time and then re-opened once these pressures were alleviated.

On this occasion the deferral has been prolonged due to a large number of withdrawal requests in the underlying fund creating more significant pressures, and affecting the performance outlook for the next five years. As the situation has developed we consider that the impact of these pressures meant a decision on the longer-term suitability of these funds in our Workplace Pension fund range was required.

Although we decided to close the fund some time ago, the impact of the Coronavirus situation and the ongoing deferral has impacted our ability to deliver this closure sooner. We aim to implement changes like this in a timely manner, and as such we will make sure customers are no worse off for any delay beyond what we feel is reasonable.

We’ve concerns over the increase in charges to our customers associated with accessing an alternative property fund. In addition, in our view the cost to a customer of moving their investment from one property fund to another would be prohibitively high and wouldn’t represent good value for money.

M&G reopened the M&G Property Portfolio on 10 May 2021. This fund is separate from the underlying fund used by the Prudential UK Property S1 and S3 funds.

The underlying fund used by the Prudential UK Property S1 and S3 funds remains in deferral whilst the fund manager sells sufficient properties to meet redemption requests.

Yes, there may be other costs. While there is no switch charge for moving investments, there are other costs linked to this type of change. These can be broken down into two types:

  • Out of market risk: When money moves from one asset to another, there may be a short time when the money is not invested, and you wouldn’t benefit from any investment growth during this period ‘out of market’. However, you could benefit by missing any fall in investment values during this time.
  • Price adjustment: When we buy or sell units, the fund manager may sometimes adjust the price to protect other investors in the fund. This means you could receive fewer units in the fund your investment is moved to, if that fund’s price is adjusted upwards.

Where we have proposed investments be moved to PDGI we estimate that these combined costs could be the equivalent of a one-off amount of approximately 0.5% of your investment in the property fund (£5 of every £1,000 invested). This cost may differ if investments are moved to a different fund. It’s important to note that this cost isn’t an amount that is deducted from your investment but is incorporated in the price we buy and sell units at.

This estimate is based on our current understanding and best analysis but may be subject to change. It will only be known on the applicable closure date, and may be higher or lower than estimated.

We won’t apply any charges outside of those already mentioned. That means we’ll use all of your investment in the property fund to buy units in the fund(s) that investment is being moved to. We’ll sell the units in the property fund at the market price on the closure date and buy units in the fund(s) the investment is being moved to at the price offered by the fund manager at that time. As different funds have different prices the number of units bought will also be different to the number you held in the property fund.

Yes, it will be applied, even though the contributions won’t be re-invested in the property fund. We’ll take the number of units that you have in the cash fund through reallocated contributions, and check what the value of these units is at the closure date.

If necessary, we’ll add units to your plan to make sure that the value of the redirected contributions will be the greater of:

  • the equivalent investment return had you been invested in the Prudential UK Property S1 or S3 fund up until 1 February 2021, which is the date on which we had hoped to complete the closure, plus the greater of the returns on either the property fund or the fund investments will be moved to from 1 February 2021 to the applicable closure date (either 24 May, 9 June or 22 June 2021, depending on the plan type noted at the top of the page); or
  • the return from the Prudential Cash S1 or S3 fund; or
  • the contributions paid.

The number of units you have in the cash fund may have been reduced during the reallocation period if any withdrawals are made – this includes any withdrawals to cover Ongoing Adviser Charges or Policy Charges where appropriate. The guarantee will be applied to the unit values after these withdrawals.

This guarantee will end when the property fund closes.

The value of your pension pot depends on the performance of the funds you invest in. Your new fund could perform in a different way to the old fund. No-one knows how funds will perform, so it’s hard to say what this change means for your savings longer term.

Please remember that the value of any investment can go down as well as up so you might get back less than you put in.

Based on what we charge now, PDGI’s annual management charge (AMC) will not be more than that of the property fund. You can find information on PDGI’s further costs and charges in our letter to customers affected by the closure. If you choose to select an alternative fund(s) please bear in mind the AMC of those fund(s) may be higher than that of the property fund.

Please also note that charges might change in the future.

Your fund guide sets out all the funds available to you, along with their charges. If PDGI is not currently available to your plan it will be added in time for the closure. On or around 22 June 2021, your fund guide will be updated, with PDGI being added if required and the property fund being removed.

No, the Prudential UK Property S1 and S3 funds are closing. You can choose an alternative fund(s) if you wish, but you need to tell us by the reply date noted in the letter you’ve received about the closure so we can move your investment in time.

We are not accepting regular contributions into the property funds while the restriction remains in place. Instead, to allow continuity of investment, any regular contributions that would have been invested in the S3 property fund continue to be invested into either the Cash S3 fund or an alternative fund(s) of your choice.

The value of contributions reallocated to the cash fund will, with effect from the date noted in the letter to you about the closure, be moved to the fund proposed in that letter. You can choose an alternative fund which the value of contributions would be moved to.

If you chose to reallocate your regular contributions to a different fund(s) the value of those will not be moved and will continue to be invested there.

The cash fund has the lowest level of risk of any of the alternative funds available, and is defined as the default fund to be used under a fund restriction scenario. Additionally, we will apply the guarantee noted in question 5 to ensure no-one suffers any financial detriment as a result of reallocating their regular contributions to cash.

You are free to choose an alternative fund(s) into which future regular contributions are paid into, if you wish.

The guarantee noted above in question 5 ensures no-one will suffer any financial detriment as the result of reallocating their regular contributions to cash.

No – the reallocation of contributions is to protect regular contributions made since 3 June 2019. The restriction on the property funds, and not allowing switches out at this time, is to protect the long-term interests of investors in the funds.

No. We have not accepted any new investments into the property funds during the restrictions, including where that investment would have been switched out of another fund. This will continue until the property funds close.

Yes, certain withdrawals out of the property fund continue to be allowable at this time. These are:

  • taking retirement benefits, including contractual regular withdrawals and income payments
  • any claims on death or serious ill-health
  • pension sharing on divorce

Other transaction requests from the property fund continue to be delayed. These include:

  • transfer claims
  • requests to switch out

Requests that have already been received will be processed either at the end of their six month deferral period or with effect from the applicable closure date whichever is sooner. We’ll write to customers again to check that they still wish to proceed with the request.

New requests made between now and the closure will be actioned with effect from the closure date.

We announced a deferral on some types of withdrawals from the Workplace Pensions Prudential UK Property S1 & S3 funds. We also decided to stop accepting new contributions into the funds.

This was done as the manager of the underlying fund, the M&G PP UK Property fund, needs to sell some of the property the fund owns, so that payments can be made to customers. Occasionally we, along with the fund manager, put withdrawal requests on hold for our property funds which enables the manager to get the best price it can for property it is selling within the underlying fund.

This is a normal part of how a property fund works, and doing this can help the manager protect the value of the fund for everyone invested in it.

The general market conditions since our announcement, especially in 2020 due to the Coronavirus pandemic, have meant the fund manager has been unable to sell sufficient properties to enable the underlying fund to come out of deferral. Those conditions have improved and the fund manager has been able to restart their planned sales of properties.

However, as mentioned above, the deferral remains in place and will do so until the closure. Similarly, no new contributions are being accepted into the property funds.

Yes, please call 0345 600 0343 to request one. Please bear in mind that certain transactions continue to be subject to a deferral period of up to six months or until the fund closure, whichever is sooner. At the relevant date, we will check if the transaction is still wanted and, if it is, will use a fund valuation based on the unit prices current at that point in time.

The unit price of the funds continues to be published on our website.

The unit price for your Prudential UK Property S1 or S3 fund is linked to the value of the property assets of the underlying fund, the M&G PP UK Property fund (which in earlier updates to this page we’ve referred to by another name we use internally, the “PPL Property fund”). Due to the ongoing Coronavirus situation, independent valuers in the market had found it increasingly difficult to accurately value properties held by commercial property funds. As a result a material uncertainty clause was invoked.

The general lack of market activity meant there were few similar properties with which to compare valuations. There were also issues with assessing how secure rental income from tenants may be, both now and in the future. These issues can create uncertainty in the overall fund valuation and therefore also affect fund prices.

As previously advised, the clause was lifted in September 2020 and no longer applies.

We are sorry if this has caused you issues. The URL is a mix of lower and upper case characters, and is case sensitive. This means it needs to be typed into your browser exactly as shown in your letter in order to locate the correct fund guide for your plan.

We review and update, where necessary, the ‘Further Costs’ figures on an annual basis. We are currently updating our fund guides with these revised figures. This means some fund guides have been revised while others will be updated shortly. Fund guides showing a revision date on their back page of ‘04/2021’ or later will include the revised figures.

The new figure for the property fund is 0.55% while the previous figure as noted in your letter is 0.53%, which was the published figure at the time of writing. There has been no change to the ‘Further Costs’ figure for Prudential Dynamic Growth I (PDGI) which remains 0.01%.

You can find more detail in your fund guide about what is included in these costs.

On or around 22 June 2021, the property fund will be removed from fund guides and PDGI will be added if it is new to your plan.