Pension Scheme Wind Up - Any Advice Welcome!

Codman

Hi there everyone, I have had a look through some of the topics and advice given on here and couldn't find exactly what I was after but there seems to be some well informed advice given on this site!
Anyway, here goes, I received a letter today from a firm acting on behalf of my old employers (not been there for 10 yrs now!!) pension fund trustees saying the fund was being wound up. The fund value was about £3400 at 30th Sept 2008, but the transfer value given was only £1700 :eek:. The reason given for this in the blurb was "AXA deducts as a lump sum the charges it expected to receive over the lifetime of the pension account when the funds are transferred away".

Apparently I have four options:
1) A "default" option where the funds will be automatically invested in a Scottish Widows fund (Recommended by the Trustees for the majority of members).
2) Have the benefits assigned with AXA and so will remain invested in their current format.
3) Transfer into my current employer stakeholder pension.
4) receive lump sum under current wind up legislation.

Now my initial reaction is to keep the funds with AXA to keep the full fund value, and if they are going to clobber me with charges then they may as well do the work over the life of the fund to earn those charges. Am I missing something here? Why would the Trustees suggest moving to Scottish Widows (and I assume attracting all these AXA charges, then pay the Scottish Widows charges over the life of the fund as well??) Seriously confused and think I may be on the verge of being ripped off by AXA :mad:

Tighthead

On winding-up a scheme, the trustees/adminstrators are obliged to write to the members to tell them and ask what you want to do with the funds. In the event that - inevitably - some members can't be contacted or just don't bother to reply, there has to be a default option to allow the scheme to be wound-up.

I suspect this is options 1. and 2. that you refer to. Rather than physically transferring the money to Scottish Widows (and thus incurring charges), I suspect this is a reference to a Scottish Widows-managed investment fund, as opposed to one managed by, say, Fidelity, Gartmore or Axa themselves.

The problem with older style pension contracts is that most had front-end loaded charges, and so you would pay a transfer charge if you take benefits or transfer before your Selected Retirement Age, unlike modern contracts where charges/penalties are rare. Not a great deal you can do about it really. I've seen people make complaints about the amount of the transfer penalty, with mixed success. Might be worth a try if you go down the transfer route.

I would suggest speaking to a financial advisor who is prepared to consider advising on whether you would be better staying where you are in the default fund, or other, or transferring elsewhere and taking the hit on the charges. Having said that, I doubt you'll get many takers with a fund so low, or be prepared to pay a fee.

If in doubt, the default option is there for a reason; it will have selected by the trustees/adminstator as being the most appropriate option for most members.

Sorry I can't help more. I feel this is the sort of area where you really need more specific, professional advice. Did the trustees suggest anyone, or have the company that wrote to you offered any advice?

Codman

Thanks for taking the time to respond Tighthead:beer:. Under the default option "the funds will automatically be invested in Scottish Widows' State Street 50:50 Global Equity Index Fund with a 10 year lifestyle switching pattern" It is not clear to me whether this constitutes a transfer of the fund from AXA, but my sceptical mind would have thought it was.
Like you say it is a small fund, but I sort of resent giving £1700 to AXA for nothing in return. And the Government wonders why everyone is so reluctant to pay into pension schemes?

EdInvestor

How old are you?If not far from retirement, it may be best to allow the scheme to mature penalty free at AXA, assuming that

a)its fund performance is reasonable and
b) its basic charges are competitive

You need to compare this with what is being offered at Scottish Widows.The Scottish Widows personal pension is a good product, with access to a large array of quality external funds and competitive charges. Will you get access to this if you so choose?

If you have a long way to retirement you may be best to take the hit on penalties and move - assuming you get access to the full SW PPP not some cut down bog standard version.

In any event you can't expect much, even in the long term, from such a small fund.

Debt_Free_Chick

I think you need to get them to clarify which options get the penalty applied and which do not.

Like you, I expect that option (2) would not attract the penalty as the fund's staying with AXA. Have a closer look at the AXA option as some of their products give you access to external funds i.e. not just AXA funds

Codman

Hi EdInvestor, thanks for your response. I am 37, so I still have at least 20 years or so before drawing my pension. This default option Scottish Widows fund has no policy fee, but annual management charge (AMC) is 0.9% of capital and accumulation units. The current AXA scheme has a policy fee of £2 minimum per month, 5.5% AMC on capital units and 1% AMC on accumulation units. which are higher, but are these not the fees AXA are trying to deduct up front on any transfer to a new fund, so I would effectively pay these AXA charges and then also the Scottish Widows charges during the life of the new fund? It just feels like I am paying twice for the management of the fund. It does say in the blurb that "I will be able to choose from numerous other investment funds should I not wish to remain in the default fund and will be able to obtain further info direct from Scottish Widows once the policy has been set up." It also goes on to say "You will not be able to pay any more into this policy but you will otherwise have full control over it."

I dont seem to have been receiving any information on the performance of this AXA pension, indeed the letter informing me of the winding up was sent to my parents address (where I was living at the time of contributing to this scheme) but I am certain they would have given me any correspondence received in the meantime.
I am starting to think I should just bite the bullet and transfer over to SW.

Tighthead

Hi Codman,

It very much sounds to me that the State Street Fund is simply one on offer via Axa, that they happen to have chosen as their default fund. In order to change your funds from your current choice (do you know what that is?) Axa would simply make a fund switch for which they are unlikely to charge a fee, and would NOT constitute a transfer and thus incur a penalty. Check this point out though with Axa.

As I said before, the transfer penalty would only apply if you physically move the money away from Axa to another pension provider. I think that would only apply in your option 3.

The decision whether to transfer or stay where you are (regardless of the fund(s)), depends on a lot of factors.

As a thought - and this is very basic, but the principle is sound - you could get a quote to your retirement age from Axa assuming that you stay with them, and another from your current employer's pension scheme assuming you transfer the pension to them (don't forget to take off the penalty), and then compare the results.

This is only very limited and will only really compare charges between the two companies and not fund performance or any additional benefits (but I assume there are none under the Axa plan anyway), but it aint a bad start! I'm sure you could make an educated guess as to whether to request a transfer or not. Both companies will provide you with quotes based on growth rates of 5%, 7% and 9%. Ignore the pension/annuity figures - they're useless/irrelavent. Compare the projected fund values only.

I take your point about pensions in general. It was all supposed to have been simplified, but it's still a minefield for the public and advisors alike!

Codman

Mmm... more info required I think. Thank you all for your advice I'm off to get some more facts..