A market value reduction (MVR) is a cut some providers make to a with-profits pension payout when you leave at a time the policy does not protect.

If you hold an old with-profits pension, the figure on your last statement is not always the amount you would receive on a transfer or cash-in. Pension Wise, from MoneyHelper, is "free, impartial and backed by government" (what Pension Wise offers). Old with-profits wording rarely says plainly when an MVR bites. Using the form on this page, ask an FCA-authorised adviser to read your plan's MVR clauses alongside you by phone, at no charge.

What is a market value reduction on a pension?

Prudential's customer guide describes it like this: if you withdraw or switch money from a with-profits fund, "you may get less than the value of your plan as shown on the last policy statement we sent you." The reason, it says, is "so that we can make sure everyone invested in a with-profits fund gets a fair share of the profits." Standard Life's guide gives the same reason: it protects customers who stay in the fund when others leave.

The background is smoothing. Bonuses on a with-profits fund are not simply the fund's daily investment return, because the provider holds some gains back in good years. If markets then fall sharply and many people leave at the smoothed value, those who remain would carry the loss. The reduction brings an exit payout back towards what the underlying investments are worth.

Other labels exist. Nest's transfer-in help page, for instance, refers to "a fund charge called a market value adjustment or market value reduction", so a search for a pension market value adjustment usually leads to the same thing. For how the rest of a with-profits pension works, see how with-profits pensions work.

When can an MVR be applied if I cash in or transfer?

An MVR can be applied when you leave a with-profits fund at a time other than those set out in your terms. Aviva describes it as "an adjustment factor that can be applied to those leaving a with-profits fund at times other than those specified in the terms and conditions, particularly following a large or sustained fall in the stock market or when market conditions mean that investment returns are lower than expected."

Prudential lists the actions that can bring one in: switching to another fund, cashing in or transferring a plan, taking early or late retirement, a full or partial withdrawal, paying adviser charges from the fund and certain regular withdrawals. It decides case by case, and may apply one when a plan's value is greater than the value of the assets it is invested in and you take one of those steps; it also says it may change its practice at any time without prior notice. Phoenix Life tells customers that moving to a new plan, or taking benefits early, may bring "an early exit reduction fee or a market value reduction on your policy". Each plan's terms decide for that plan.

The type of policy matters too. Not every with-profits fund uses them: Aviva says an MVR "can apply to some types of with-profits funds", and Aegon, for instance, lists MVRs for its Traditional and Unitised With-Profits funds (TWP and UWP), while payouts from its New Generation funds can carry a smoothing reduction or increase. A transfer-specific walk-through of the other checks is in should I transfer my with-profits pension; Standard Life's fund is covered in its own guide.

When is there no MVR? Guaranteed dates

Insurers say the guarantee depends on the policy. Prudential guarantees not to apply an MVR on the investor's death, "at the selected/normal retirement date of a pension plan", at the anticipated annuitisation age of a relevant income drawdown plan, and at maturity of an endowment plan. Aviva says "A Market Value Reduction is not applied on death or where specific guarantees apply", giving as an example that "certain pensions have a ‘MVR Free Guarantee’ so that the MVR doesn’t apply on a customer’s selected retirement date." Standard Life's guarantee, which it says can vary from one type of plan to another, applies at the retirement age selected when the plan started, as long as you are taking your retirement benefits. Even Aviva's date has a condition: its FLC With-Profits Sub-Fund guide (print reference HL02001) says that for pensions policies it may apply an MVR on the selected retirement date if additional single payments, transfer payments or switches into the sub-fund were made in the previous five years.

Aviva says the with-profits fund's charges pay for its MVR-free guarantee, which may make them higher than those on other investment funds, and recommends advice before anyone withdraws, switches or surrenders with-profits benefits. Leaving early, or transferring instead of waiting for the chosen date, can therefore be the difference between a guarantee applying and not. Your provider can confirm the dates your policy names, and an adviser can explain how they fit your plans.

How big can a market value reduction be?

No fixed size applies. Prudential says "An MVR isn’t a fixed amount" and that it depends on how much the plan is worth, including bonuses, and how the fund has performed over the time you have been invested.

Prudential's example has five investors with equal £10,000 stakes in a £50,000 fund. The fund falls 20% to £40,000; if one investor leaves with no adjustment and takes £10,000, the other four are "down to £7,500 each". With an MVR, the leaver is "paid £8,000". Aviva's example uses three investors who each put in £10,000: after a 20% fall to £24,000, the one who withdraws would receive £8,000 with an MVR, leaving £16,000 for the other two, against £14,000 without one. Aviva says its illustrations do not represent the actual performance of any specific with-profits fund, so treat both as explanations, not forecasts. Standard Life says there is an MVR when the with-profits assets have not performed as well as the unit value and no guarantee applied, so a plan can come out with none.

Prudential adds that you are only affected if you want to withdraw or transfer. Whether one is in force on a given policy today is a question for the provider.

What to ask your provider about an MVR

Ask your provider to answer in writing, and keep the answers with the transfer paperwork:

  • Is an MVR in force on my plan today, and what is the transfer value with and without it?
  • Does my policy carry an MVR-free date, such as a selected retirement date, and what is it?
  • Does that protection need me to take benefits on the date, or would a transfer then be covered too?
  • Have extra payments, transfers in or switches into the fund changed that protection?
  • Would a later transfer date avoid it, and what would I give up by waiting?

FCA rules point the same way: under COBS 19.4.6C, the one-page summary sent with an open market options statement has to set out any MVR conditions in place on with-profits funds and how to find out more. Keep the cost side in view with pension transfer fees and early withdrawal penalties, and, for the process itself, how to transfer a pension. An adviser can weigh those replies with you on a call-back, which costs nothing to request here.

What people ask about market value reductions

Can a conventional with-profits policy have an MVR?

It depends on the provider and fund. Aviva's FLC sub-fund guide says MVRs there apply only to unitised with-profits policies, while Aegon lists them for its traditional with-profits funds as well as its unitised ones.

Does the provider keep the money an MVR takes off?

Prudential says not: what is held back remains in the fund for investors who stay. Other providers may word it differently, so check your own plan's terms.

Where does my provider set out its MVR practice?

Prudential points first to your Key Features and policy documents, then to its customer-friendly Principles and Practices of Financial Management (PPFM) at pru.co.uk/ppfm. Aegon refers customers to its own customer-friendly PPFM on its with-profits governance page, and Aviva's With-Profits Summaries explain its guarantees.

Does dying trigger an MVR?

Prudential guarantees not to apply one if the investor has died, and Aviva says it does not apply one on death. Pension death benefits more broadly are in how pension death benefits work.