Transfer existing Zurich PPP??

Noelle_2

My partner has an old Allied Dunbar (now Zurich) PPP which he has been making contributions into for the past 20 years. It is a high risk stocks and shares fund, but as markets move in cycles he isnt worried about this just yet (hes 40). My concern is he has been advised to transfer and continue with a new Futureproof pension with Clerical Medical - on a more moderate risk fund investing in Gilts and Bonds plus cash. The penalty on transferring Zurich is quite substantial (£4k) plus the commissions to repay for the advice through the new plan totals about £3k. This seems quite excessive to me. Would he be better to continue paying into Zurich, freeze it and begin a new plan with CM without the transfer or take the advice to transfer aswell? The advisor is indepedendant but I just wanted a second opinion if anyone can help please?

dunstonh

It is a high risk stocks and shares fund

Dunbar dont have many high risk equity funds on their pension. Medium/high is about as far as they go.

My concern is he has been advised to transfer and continue with a new Futureproof pension with Clerical Medical - on a more moderate risk fund investing in Gilts and Bonds plus cash.

Clerical Medical are a good provider and have a factory gate priced pension which at your husbands age can make it a very cheap provider.

The person recommending this has to asses your husbands risk profile and if its only gilts, bonds and cash then that is not moderate risk but very low risk.

The penalty on transferring Zurich is quite substantial (£4k) plus the commissions to repay for the advice through the new plan totals about £3k.

If your husband is going by commission and not fee then he doesnt pay the commission. The provider does. A £4k transfer penalty is not large. I would say its about average. My largest penalty was over £30,000. Thats large.

This seems quite excessive to me.

Have you seen the TVAS (transfer value analysis) which shows the difference in charges over the term of the pension? If not, then how can you make any judgement on excessive or not? If so, then you would know that the recommended option is cheaper.

Would he be better to continue paying into Zurich, freeze it and begin a new plan with CM without the transfer or take the advice to transfer aswell?

No-one here can answer. We don't have the data to do a TVAS which is the only way to know the cost differences.

The advisor is indepedendant but I just wanted a second opinion if anyone can help please

You cannot transfer pensions willy nilly. You need justification for doing so and the FSA did publish an occassional paper some years back for the benefit of IFAs on when to transfer pensions. The most common reason for transfers is lower cost. Modern contracts are usually much cheaper than legacy contracts. Not always the case (about 80% of the time its cheaper roughly).

All that said, I do have some immediate concerns.

1 - Your understanding of risk is probably not that strong based on what you have said (high risk on AD and moderate on CM whereas AD dont have any high risk funds and the choice on CM is very low risk). However, you do seem to understand risk enough to know the values zig zag and you have time in your favour. So, if your husband is the same then it would appear that the IFA has come to a different opinion on the risk profiling. You need to discuss that and see why there is a difference in what the IFA thinks your husband is and what you think.

2 - My experience of AD pensions is that they are either very expensive or damned cheap depending on what version you have. They are never cheap when paying into them as they have high contribution costs. So, redirecting the contributions elsewhere is a common recommendation. However, many have no annual management charges. So, leaving it where it is but no longer adding to it is often the best outcome. That said, some of them do and transfer is best. The only way to tell is to do the TVAS to compare projections.

3 - Commission. You dont pay commission. You pay annual management charges. The provider pays the commission and takes it back in annual management charges. With pensions it can take 15-20 years for the prover to cover their commission payment. That said, some modern contracts (and CM do offer one of these) allow for a fee to be deducted from the pension and the annual management charge is much lower than default. If you have a long time to go to retirement (typically over 20 years) then this can be a very efficient option.

If you dont want to go by the commission option then go fee based. Better still, go fee based and have it taken from the pension as you effectively get tax relief on the fee. If the commision is 3k then fee basis should be cheaper than that.

Noelle_2

Thanks for your quick reply. I realised I had taken the risk assessment from the attitude to risk on the recommendations letter, rather than the actual fund risk. I assumed they would be the same so didnt check.We'll look into a TVAS. I just thought that on the face of it the CM fund did not seem attractive due the transfer penalties, commissions (paid from deductions) and the AMC being higher, but can see its much more complicated than that and need the analysis to make a proper assessment.Thanks again!!

CICSONE

Hi,

I've been searching on the web for topics along the lines of transferring pensions and the exit value penalties incurred and came across this which has more than a passing interest!! I also have an old Alllied Dunbar pension which now comes under Zurich. I no longer contribute to this as I am part of my employers Stakeholder Pension setup for the last 3 years.

I have been looking into transferring the Zurich one to a SIPP to offer me better control & flexibilty. I also think the penalties they incur are punitive and to me nowadays a disgrace. I have been quoted around 5K as well as a full exit value (certainly pales into insignificance to the 30K I see mentioned by one of you). A recent visit to my IFA mentioned that I should just swallow the cost and look to invest elsewhere with a greater range of funds (tho' he didn't seem to suggest that Zurich were that bad a provider!) I've already complained to Zurich within the last month. As I fully expected, their decision was that the early transfer charges formed an integral part of the contract into which I entered and were non negotiable. Yes it was an old contract (1991) but didnt the likes of Norwich Union and some other provider stop this kind of charging on old contracts in 2001/2002?? I can take my complaint further to the FSA but I think I know what the outcome will be here as well. I havent done a TVA to compare but I notice this is discussed in the thread. I haven't seen this in any of the yearly literarure Zurich provides me so is this something I have to request or was this provided at the outset of setting up the PPP?

Thanks

dunstonh

but didnt the likes of Norwich Union and some other provider stop this kind of charging on old contracts in 2001/2002??

Some providers have absolished transfer penalties but there is no legal requirement for them to do so. Some have been selective in their contracts.

I can take my complaint further to the FSA but I think I know what the outcome will be here as well.

The FSA will return your complaint to Zurich However, i think you mean the FOS. The FOS will reject your complaint. They have on every similar complaint made as it was within the contract terms at the time. The FOS would possibly make reference to the fact that by leaving the Zurich plan to go into a SIPP you are not only facing a transfer charge but also higher annual management charges. So, complaining about charges when you are going into a more expensive contract wouldnt hold a lot of strength.

I havent done a TVA to compare but I notice this is discussed in the thread. I haven't seen this in any of the yearly literarure Zurich provides me so is this something I have to request or was this provided at the outset of setting up the PPP?

TVAS = transfer value analysis software. Zurich will not provide this. It is software that is paid for and used by IFAs to compare plans. With personal pensions you dont technically need to do one but you can compare illustrations. The only benefit of using TVAS on personal pensions is that you can compare on the same dates.

EdInvestor

The old Allied Crowbar contracts featured an arrangement whereby you have to pay charges on contributions up till the maturity of the contract, even if you leave. That's what the transfer penalty is - the charges you would have paid if you stayed.

You've already stopped the rot by switching new money elsewhere, how far are you off from the time you can take benefits from the Crowbar pension without penalty? If you transfer and reinvest, how long will it take you to recover the penalty?

CICSONE

Thanks DunstonH & EdInvestor for your replies - much appreciated. I'm 43 at the moment and chose way back in 1991 a retirement age of 55 with the PPP. So 12 years if I leave it where it is. I stopped contributions to this plan in 2005.

DunstonH, wasnt sure what you meant by "going into a SIPP you are not only facing a transfer charge but also higher annual management charges". Are you saying that any SIPP is more expensive fee wise and management wise than insurance companies? I know there would be initial fees for purchase of certain securities, bonds etc within a SIPP but I thought this setup was to save on longer term management costs? You mention “The most common reason for transfers is lower cost. Modern contracts are usually much cheaper than legacy contracts. Not always the case (about 80% of the time its cheaper roughly).” So I’m a bit confused. I also see you also mention that “My experience of AD pensions is that they are either very expensive or damned cheap depending on what version you have”. How can I tell where mine falls?

EdInvestor, your comment about the "transfer penalty is - the charges you would have paid if you stayed" is exactly what their Customer Options Team described to me how this worked but I'm pretty sure this was not described at the outset of the when I signed up for this. I had a quick look at my original contract last night and yes it gives transfer exit values within the first 5 years of operation but it looked like from amounts I was paying in, the exit values diminished entirely in years 4 or 5. Nothing was explained what happened beyond this and I can’t recollect seeing this in the original contract but I’ll recheck these tonight. The calculations at the time were based on a return of 10.5% pa. From the outset it appears as though there were heavy up front costs in the first 3 years at least, ongoing management fees, and this exit fee to cap it all (oh and charges on indexation charges). I’ve also been advised by Zurich in the last couple of years that after 17 years of being contracted out of SERPS perhaps it isn’t now in my best interest to continue this way!! Suits you sir and to me scandalous hence the reason the pensions area is a bit emotive with me.

My main point about all this is what is different to the type of exit charging going on here than the types of charging now being pursued with the likes of mortgage exit charges, bank charging etc. They’re all punitive.

Do either of you 'think' that Zurich is better placed than any other insurance company? Should I just leave it and hope legislation changes further before I retire? Sorry know you cant really answer this.

You may think I'm complaining about charging generally and to make it clear I'm not. I don't have a problem paying ongoing management charges however exorbitant they might be for mediocre performance (probably being unfair but can anyone tell me if Zurich is any better than any other provider?? Is there a league table??). At least I know where I stand with these. I do, however, have issues with transfer penalties.

So am I making a mountain out of a molehill? Should I just accept the charge and move on (is there anything to convince me to stay?), going to the FOS sounds like a non-starter or do I accept the charge and go for a small claims (severe for the amount involved or is it a principle?)

Have any of you heard of a setup called Nucleus for use by IFA’s?? Appears that my IFA thinks its a possibility for myself....

dunstonh

Are you saying that any SIPP is more expensive fee wise and management wise than insurance companies?

For the use of investment funds, then yes. A SIPP is typically the most expensive option. A personal pension would be cheapest at your age. This assumes like for like distribution channels (i.e. buying both on execution only or buying both on advice. Not one on advice vs the other on execution only).

know there would be initial fees for purchase of certain securities, bonds etc within a SIPP but I thought this setup was to save on longer term management costs?

If you buy direct investments rather than funds, then it can be cheaper. Although post 6th April 06, 90% of SIPPs have been utilising funds. That has to mean many people paying more in charges than they need to.

You mention “The most common reason for transfers is lower cost. Modern contracts are usually much cheaper than legacy contracts. Not always the case (about 80% of the time its cheaper roughly).” So I’m a bit confused.

Thats from those getting advice. It doesnt take into account those going DIY.

I also see you also mention that “My experience of AD pensions is that they are either very expensive or damned cheap depending on what version you have”. How can I tell where mine falls?

Thats part of an analysis that the IFA does. A cost comparison between product types is fairly easy to do and you just ask Zurich for projections to selected age with premiums ongoing and paid up and a list of the charges. You then get illustrations on the alternatives using the transfer value using the same age for both the paid up amount and the ongoing amount.

Suits you sir and to me scandalous hence the reason the pensions area is a bit emotive with me.

You bought in 1991. What other consumer products from 1991 do you still use? Look at the quality of things back then compared to now. Products in that time were priced with boom/bust high inflation in mind. Computerisation and lower inflation allowed for modern pricing. Things have just moved on that is all.

My main point about all this is what is different to the type of exit charging going on here than the types of charging now being pursued with the likes of mortgage exit charges, bank charging etc. They’re all punitive.

Mortgage exit charges were able to be reclaimed if they exceeded the contract amount. If they didnt they could not. ERCs cannot be reclaimed. Overdraft charges are a penalty charge for unauthorised credit. Different rules apply to those. These charges were in the contract and are classed as lawful.

Do either of you 'think' that Zurich is better placed than any other insurance company? Should I just leave it and hope legislation changes further before I retire? Sorry know you cant really answer this.

There is nothing to suggest anything will change on this front. Its not considered an area that needs reviewing.

probably being unfair but can anyone tell me if Zurich is any better than any other provider??

apart par for internal funds. If you get them on zero annual management charge if paid up then they could be very good value. Only time will tell if you can do better though.

going to the FOS sounds like a non-starter or do I accept the charge and go for a small claims (severe for the amount involved or is it a principle?)

FOS have ruled in favour of insurance companies on these as they are acting within the policy rules. I would imaging a small claims court would also find in favour of the insurer as its within the contract. Nothing more, nothing less.

Have any of you heard of a setup called Nucleus for use by IFA’s?? Appears that my IFA thinks its a possibility for myself....

It's a wrap. Personally, I am not a fan of wraps. They just seem to add another layer of charges unnecessarily. Most IFAs run back office software that is capable of running of a pdf of all your contracts with latest values. A quick email to the IFA and get the PDF back later. A wrap will give you a website with all that. Probably with a range of tools for information and basic research but you will pay for it. Transact is another popular wrap. Although they can actually work out cheaper with large amounts. Personally, i prefer fund supermarkets as the contract is clean. Unit trusts at normal annual managment charges with no extra layer. Dont rule out personal pensions either. Whilst you dont get the massive fund range of a SIPP or fund supermarket, you get access to around 150-300 odd funds usually and for most people that is enough. Plus, you can get them cheaper than if held in a SIPP. Especially on factory gate priced contracts when you have more than 20 years to go to retirement.

EdInvestor

CICSONE wrote: »

EdInvestor, your comment about the "transfer penalty is - the charges you would have paid if you stayed" is exactly what their Customer Options Team described to me how this worked but I'm pretty sure this was not described at the outset of the when I signed up for this.

http://forums.moneysavingexpert.com/showthread.html?t=355374

Very useful thread on this issue, explains how it works.

I’ve also been advised by Zurich in the last couple of years that after 17 years of being contracted out of SERPS perhaps it isn’t now in my best interest to continue this way!!

Were the SERPS rebates going into this pension?If so they should most certainly be regarded as single contributions not regular. Very possibly you shoyuld complain.

You may think I'm complaining about charging generally and to make it clear I'm not. I don't have a problem paying ongoing management charges however exorbitant they might be for mediocre performance (probably being unfair but can anyone tell me if Zurich is any better than any other provider?? Is there a league table??).

You can compare funds here:

www.citywire.co.uk/Funds/Home.aspx ( select ABI to get Zurich funds, mostof the best funds are under "IMA" and accessible via a SIPP).

SIPPs have a wide variety of charges. They can be (much) cheaper than insurance co pensions if you invest directly and dispense with advice.

CICSONE

Again thanks to both DunstonH & EdInvest for your quick replies.

EdINvest - To answer your question on the Protected Rights part (SERPS) ... yes the rebates for each tax year were invested in the same funds as the Non Protected Rights part. I assume then they are say that something has changed in the benefits of being contracted in again? I would hate to think they weren't saying the performance of the fund wasn't so good!!

So what is the real reason for them saying at this stage I should be contracted back in...?? My IFA thinks it a totally cop out.... and what is your reason for thinking I have cause for complaint here? I'm pretty annoyed that they change the rules to suit but I guess that's insurance companies for you...

I looked at my deatils again last night on the original contract and there isn't anything in there which states anything about exit penalties except to provide an analysis of the first 5 years and gives nothing else on the matter. I find this completely misleading because it does not state anything about the type of exit penalties. So how would I have been able to find out what they were like 17 years down the line?? There appears to be a management fee of 3/4 % on the fund per annum and certain expense deductions.

EdInvestor

The point is that there is a big difference in the charges and commission on ADpensions involving single premiums and regular contributions.If yours had been set up as a single premium pension you would not have to pay this transfer penalty.Typicalli, PR pensions (because the rebates arrive annualy as a lump from the DWP) were set up as single premium pensions.

So as you can see from ythe link I posted you may have a misselling claim, based on the fact that you should havw been sold a single premium based pension not a regular contribution based pension.

The issue of you being contracted back in now is separate - all insurers are suggesting this for people of your age.

I suggest you closely study the MSElink I posted above, very relevant to your situation.