100% with profits funds - no good anymore?

MiserlyMartin

I have a Standard Life pension invested in 100% with profits because in 1996 when I started it, the advisors apparently were all reccomending them.

My new pension advisor says that with profits are history and that once I get the Standard Life shares from the floatation, I should get rid as soon as possible and transfer it all into my new pension.

Is this good advice? What has changed so much about with profits that makes them such a bad investment now? I would have thought they were good in a risky economy.

EdInvestor

My new pension advisor says that with profits are history and that once I get the Standard Life shares from the floatation, I should get rid as soon as possible and transfer it all into my new pension.

You might ask your new advisor why he hasn't suggested just switching out of With profits and into other funds,of which Standard life has a number of good inhouse ones, and also offers some excellent external ones.

Of course the advisor wouldn't make any money if he suggested you do that.He only makes money if you set up entirely new pension.

After the demutualisation it might be sensible to move some - or all - of your money out of With profits. But if you have money in the old WP fund with the 4% pa growth guarantee (quite valuable these days), and you want a part of your pension investment to be in something fairly safe,or you are not far away from retirement, then it might not be right for you to move out of WP entirely.

What are his reasons for proposing you set up an entirely new pension? One of the major advantages Standard Life offers is stakeholder charges across all its pensions - and for you, that would be 1%.

Can he match those terms, and the fund range elsewhere?
What fees or commissions will he earn by arranging your transfer?

MiserlyMartin

Thanks for the reply. I should have posted more background. This advisor is managing my employers pension scheme who advised moving the company scheme to a new provider. Now hes around he is reviewing everybodys finances and past pensions.

So I already have a new pension and he wants me to move my old standard life one into that. It has a charge of 1% apart from external funds that are more. The standard life one is quite old now, its another ex-company one but I kept up my own contributions when I left. But looking at the value it is hardly any higher than what I have paid into it over the years. So is he right that with profits are a poor investment?

I realise that the more money he gets in the fund the more money he will make through commission. But his advice seems quite good, he has advised investing in some quite good external funds such as Fidelty Special Situations. I just wanted to see if other people agree with him on with profits. I am 32 so I don't need totally safe just yet.

EdInvestor

But looking at the value it is hardly any higher than what I have paid into it over the years. So is he right that with profits are a poor investment?

There are three reasons for this: one is the stockmarket crash of 2001-02 which has basically wiped out most people's terminal bonuses.The second is the requirement by the FSA to reserve for guarantees, which means that WP funds are now much more heavily invested in bonds, with lower returns, than in equities as in the past.The third thing in Standard life's case is the disastrous equity "gamble" by the management which caused them to lose a very large chunk of capital (that's why they have to demutualise) and further compounded members' losses.

In general, it is true that WP has had its day: but there are many caveats - the Prudential remains committed to it and the WP fund there has performed: come companies are offering new style WP funds without guarantees, but with smoothing, which attracts some people. Some people like having guarantees, which you have got, but are getting to be very rare.It's not a fund choice for a young person these days however, IMHO.

But while moving out of WP may be sensible, this is not a justification for transferring the pension as a whole.Ask him what's in it for you to transfer: you are already paying 1% and you should be able to invest in Fidelity Special Sits and other such funds via Standard Life. What does the new provider offer that you don't already have?

As Adair Turner at the Pensions Commission has said, pension proliferation - the constant setting up of new pensions and unnecessary transfers to new providers - is a major cause of the high costs and poor returns of the life industry.

Charges already take 25-30% of people's pensions, you might like to check that aspect of what he's suggesting: to make it worth a transfer you need significantly better fund choice and lower charges.

https://www.fsa.gov.uk/tables

dunstonh

Charges already take 25-30% of people's pensions, you might like to check that aspect of what he's suggesting: to make it worth a transfer you need significantly better fund choice and lower charges

Ed it misreading the tables and assumes we should copy the communist model where profit margins from the providers and distribution channels are not allowed.

25% from provider to distribution is a very respectable margin when compared with other retail products.

I dont see you complaining about the 40% charges on cash ISAs.

EdInvestor

dunstonh wrote:

Ed it misreading the tables and assumes we should copy the communist model

Make up your mind dunstonh.

A few weeks ago you were lashing me for pointing out the benefits of SIPPs and income drawdown, which is about as individualistic as you can get with a pension.

Now you're on my case again for suggesting people seek value for money.

If anyone can be accused of imposing communist type uniformity on investors, IMHO it's the industry itself for putting virtually everyone into With-profits funds in the 1980s and 1990s.Hundreds of billions of pounds went into endowments, pensions and bonds all invested in the same way.And if anyone wanted something different, they usually ended up in the WP fund's unit-linked clone, the Balanced Managed fund.

That's why pretty well everyone is in trouble now, because they all got sold virtually the same product which has now failed disastrously.

What an easy life it must have been for all the IFAs.Sign the punter up to the WP product, pocket the 7% upfront commission, sit back and pick up the additional trail commission for 25 years..... next please!

So stupid and sheep-like were we punters, the words 'candy' and 'baby' come to mind.....

dunstonh

A few weeks ago you were lashing me for pointing out the benefits of SIPPs and income drawdown, which is about as individualistic as you can get with a pension.

No I was not. I (and others) were pointing out that you fail to list the negative points on those things and just highlight the positives. People need to have a balanced view on these things and your posts are hardly ever balanced.

As it happens, I believe that going into a SIPP at this time would be foolish and expensive given the number of providers that are going to be launching SIPPs and more importantly Hybrid SIPPs and Insured SIPPs, once the full details of A day are known.

Now you're on my case again for suggesting people seek value for money.

You are not talking about seeking value for money. You were just taking another swipe at financial services because, on the whole, thats all you ever do at this website. Your other thread on the charges made that clear.

That's why pretty well everyone is in trouble now, because they all got sold virtually the same product which has now failed disastrously.

Stats please to back this up?

What an easy life it must have been for all the IFAs.Sign the punter up to the WP product, pocket the 7% upfront commission, sit back and pick up the additional trail commission for 25 years..... next please!

You really sound like a broken record and as per usual you are completely wrong with your figures and assumptions.

If anyone can be accused of imposing communist type uniformity on investors, IMHO it's the industry itself for putting virtually everyone into With-profits funds in the 1980s and 1990s.Hundreds of billions of pounds went into endowments, pensions and bonds all invested in the same way.And if anyone wanted something different, they usually ended up in the WP fund's unit-linked clone, the Balanced Managed fund.

You have to look at the situation at the time as well. The average consumer didnt have access to a wide range of investment funds and their knowledge was poor. At the time, there was little appetite for anything else so the demand for the with profits fund made sense. Over the years, education on financial matters for both professionals and consumers has improved and the encouragement of the FSA in this area has helped and this has led the with profits fund to become the niche fund that it should be today.

Ed, you spend too much of your time relating to newspaper articles which are generally looking to shock or paint the worst picture on everything and you appear to assume what they are reporting is the same for everyone. You ignore facts and although we all love discussion and debate on this forum, you continue to post inaccurate, misinformed, unbalanced comments and information taken out of context.

Indeed to use your style of posting, I would compare you to the insurance salesman of the late 80s who only highlights the good things on the things he wants to sell and highlights only the negatives on the alternatives and believes everything he is fed by his employer (or in your case, newspaper articles).

oceanblue_3

Edinvestor says....[What an easy life it must have been for all the IFAs] - and what an easy life it must be for you, to be able to post inaccurate information, and to offer useless advice (suggesting that edinburghdoc transfer his premises into a SIPP BEFORE April 2006!!!), and feel no compunction to retract it when its baselessness is exposed........you've got a nerve!

MiserlyMartin

Now now!!

Ummmm ok. Well the IFA who set up the Standard Life WP pension, has never advised me to change funds. In fact I don't think he has offered me any advice for years unless I phone up and specifically ask them a question. Even then I feel like they don't want to spare the time because its an old pension. So should I seek their advice? What would be the advantages in keeping the provider but changing the funds rather then switching completely?

EdInvestor

What would be the advantages in keeping the provider but changing the funds rather then switching completely?

You've already paid a load of upfront setup charges on the Standard Life pension.Are you sure you're not going to be paying a second lot of upfront charges for the new pension?

The only reason the IFA wants you to transfer is so he earns commission.

Who pays that commission.? You..

Why pay extra charges if you can obtain the same result by not paying them?

Click here to see the choice of Standard life pension funds.

<Reference to specific fund choice removed by Pal - Boardguide>

There's no need to move to another provider to get access to these.

Darryl

Not all with-profits are history. They've had a bad press recently mainly as their poor recent performance has affected the value of pensions maturing over the last few years. IMO, a good WP pension could be seen as having a safety-net role in a more diverse pension portfolio (arrrghh, I sound like an IFA!, sorry). Whether the SL one is good I cannot say. What's the difference between the amount invested vs current value of your SL pension?

Whoever recommended MiserlyMartin to invest his pension in Standard Life's with-profits fund deserves a positive mention. Now they are floating on the stock exchange it turns out to have been good advice.

After they float, the only reason I can see for repensioning is either:

1. Your broker/IFA rebates some/all of their commission in return for a small fee (see Martin's repensioning article: http://www.moneysavingexpert.com/cgi-bin/viewnews.cgi?newsid1050842958,55132,)

2. You can buy the same product cheaper with a new pension provider. (unfortunately existing providers don't generally haggle over charges...)

3. You want to invest in a different sector/type of pension, and your current provider can't offer it, or is more expensive than a new provider.

Now, your IFA probably won't offer option 1 (as they are dealing with you as part of a company pension scheme - they have no incentive). But that doesn't mean you can't repension via another IFA/broker, if that is the right thing for you to do. 'Thanks for the advice company pension IFA, but I'll take my business to a discounter if you don't mind!'
The same applies to reason 2.

In reason 3, mainly what I am saying is you should question why you're being advised to transfer it all into a Special Situations fund (this type of fund has performed well in the past, but will it continue to?). Your employer won't (I assume) match your transfer contributions. So, the transfer must have been suggested for investment return reasons. Were any other investment options offered other than Special Situations? I'd be interested to know. How much risk are you prepared to take?

Darryl

PS: Not all SIPPs are expensive. Some have no setup, transaction or annual charges...