Protected rights query for our IFAs

EdInvestor

From A day, people will be able to take benefits from their protected rights pensions from the age of 50, rather than 60 as now.

Because the earliest age at which PR pensions could be taken was set by Government policy, the normal retirement date on people's protected rights policies will never be shown as lower than 60, even if a person wished to exercise his right to have an NRD of 55(say) on his non-PR fund.

What will be the position for people who wish to take PR pensions after A day where the money is invested in a With-profits fund with a current MVA in place?

Will this vesting be seen as a non-contractual event and the MVA imposed? Or will the NRD be moved in line with the new Government retirement date, so that the vesting is seen as contractual and the retiree is able to vest the full fund?

dunstonh

Will this vesting be seen as a non-contractual event and the MVA imposed?

Yes.

The important date is the selected retirement date. That wont change.

EdInvestor

Typical.

So, a warning for anyone considering taking out a pension: always choose as the "Normal Retirement Date" (NRD) the lowest possible age allowed by the Government to take pension benefits.This is currently 50, and will go up to 55 by 2010.

Don't let the IFA or your company or the provider do this - check it yourself.

If you don't do this, and subsequently find yourself wanting to access the pension before the "NRD" on the contract, you could be charged a penalty for taking "early retirement".

If the age of 50 arrives and you don't want to take the pension, you can just select a new NRD , no penalty will be payable either at 50 or when you retire on the new NRD.

BUTan additional note for anyone who decides not to take a pension at the NRD on the contract, say it's 60, but rather put off retirement until 65.

Again, do not just inform the provider/IFA that you want to roll over the pension.Make sure you choose the new NRD yourself and it's properly recorded..

Otherwise you may well find they choose aged 75 as your new NRD, and you get charged a penalty for "non contractual" vesting when you want to retire at 65.

Paul_Herring

EdInvestor wrote:

So, a warning for anyone considering taking out a pension: always choose as the "Normal Retirement Date" (NRD) the lowest possible age allowed by the Government to take pension benefits.This is currently 50, and will go up to 55 by 2010.

Don't let the IFA or your company or the provider do this - check it yourself.

If you don't do this, and subsequently find yourself wanting to access the pension before the "NRD" on the contract, you could be charged a penalty for taking "early retirement".

Potentially silly question here - does this comment apply to all funds held in a pension or just With-Profits?

dunstonh

Paul_Herring wrote:

Potentially silly question here - does this comment apply to all funds held in a pension or just With-Profits?

Just with profits.

However, it should be noted that Eds comments apply to new business. In this case there are no conventional with profits funds available on new business, only unitised with profits. With these, most, if not all, will charge no MVR after the selected retirement date. Many have removed MVRs on new pension business anyway. If its stakeholder, they cannot charge any MVR under any circumstances. So selected retirement date isnt really an issue.

Again, do not just inform the provider/IFA that you want to roll over the pension.Make sure you choose the new NRD yourself and it's properly recorded..

In most cases, a date is not reselected, it just rolls over. With legacy pensions, more care needs to be taken as Guarantees and options may only apply on certain dates and playing around with the selected retirment date could mean you lose out on these. If you seek advice, you have consumer protection if something goes wrong. If you do it yourself, as Ed suggests, then you have no consumer protection.

EdInvestor

In most cases, a date is not reselected, it just rolls over.

But this is the problem. Perhaps you don't understand what I mean.It will quite possibly roll over to age 75 without you knowing it, so you get hit with an MVA when you want to retire two years later at 67.

I said you should check what the IFA does and from your comment it's quite clear that this is essential.

However, it should be noted that Eds comments apply to new business. In this case there are no conventional with profits funds available on new business, only unitised with profits. With these, most, if not all, will charge no MVR after the selected retirement date. Many have removed MVRs on new pension business anyway. If its stakeholder, they cannot charge any MVR under any circumstances. So selected retirement date isnt really an issue.

Regarding unitised WP versus conventional WP, AFAIK there is no difference between the two on likely MVR charges. Perhaps DH is confusing unitised WP funds (which have been around since the late 1980s and have plenty of "legacy issues" - ie guarantees) with the new-style WP funds which were introduced by some companies around 5 years ago at the same time as stakeholder pensions.

These WP funds are unitised, but their main differentiating factor from other WP funds is rather that they have no guarantees - they are like a managed fund with a bit of smoothing. Because they have no guarantees,they thus have no MVRs.Some people (including me) wonder if these funds are really what most people understand to be WP at all.

However most people coming up to retirement will not be in these new WP funds, rather they will be in older ones, which may well be unitised, but will also often have "legacy issues" , ie guarantees, and MVRs.

So watch carefully what's going on when there WP funds are fiddled with, as you can easily lose money.

If you have a big fund, it may be sensible to seek a qualified pension IFA with additional knowledge of the way your pension provider's system works - perhaps he worked there years ago? as this area is complex and different companies have quite different rules. A competent IFA with a background at the Pru, say, could accidentally make an error due to lack of knowledge of the ways of Norwich Union or Standard Life, for instance, and vice versa.

dunstonh

Regarding unitised WP versus conventional WP, AFAIK there is no difference between the two on likely MVR charges. Perhaps DH is confusing unitised WP funds (which have been around since the late 1980s and have plenty of "legacy issues" - ie guarantees) with the new-style WP funds which were introduced by some companies around 5 years ago at the same time as stakeholder pensions.

I have no confusion. Your post stated " So, a warning for anyone considering taking out a pension: ". Therefore I was only responding on new business basis. It would actually be quite hard to find a new business with profits fund version available for new pension business today which was not introduced or modified following the introduction of stakeholder rules.

These WP funds are unitised, but their main differentiating factor from other WP funds is rather that they have no guarantees - they are like a managed fund with a bit of smoothing. Because they have no guarantees,they thus have no MVRs.Some people (including me) wonder if these funds are really what most people understand to be WP at all.

Actually, they still have some guarantees. They just dont have a guaranteed sum assured. And as it happens, I went looking round a few providers this morning and found one that still levies an MVR on stakeholder business. It appears that they have built that into the fund and not the product to avoid falling foul of stakeholder charging rules.

However most people coming up to retirement will not be in these new WP funds, rather they will be in older ones, which may well be unitised, but will also often have "legacy issues" , ie guarantees, and MVRs.

Correct. But then you were not talking about existing business before.

If you have a big fund, it may be sensible to seek a qualified pension IFA with additional knowledge of the way your pension provider's system works - perhaps he worked there years ago? as this area is complex and different companies have quite different rules. A competent IFA with a background at the Pru, say, could accidentally make an error due to lack of knowledge of the ways of Norwich Union or Standard Life, for instance, and vice versa.

I totally disagree. The information provided by the insurance companies will be the same regardless of the IFA's background. The skill is knowing how to analyze that information and having the knowledge how the things work. Having worked for a company 10 or 20 years ago is unlikely to have any impact. Anyone relying on information from that long ago is extremely foolish.

EdInvestor

Therefore I was only responding on new business basis.

In my top post I referred to people taking benefits now, so I've talked about both, but OK. Just as long as we're clear that unitised WP funds are just as likely to have legacy issues as conventional WP. We wouldn't want to mislead people

Perhaps we should find a separate name for this new style of WP fund?

Stakeholder WP funds perhaps?

The information provided by the insurance companies will be the same regardless of the IFA's background. The skill is knowing how to analyze that information and having the knowledge how the things work.

But this is exactly what I mean.In the way that your company might be regarded as having additional expertise in handling Pearl policies - because you have people who used to work there and know how things work, so you are more likely to be able to get the best deal for the client.

dunstonh

Just as long as we're clear that unitised WP funds are just as likely to have legacy issues as conventional WP. We wouldn't want to mislead people

I would say some. Many with profits funds are periodically ring fenced and some do treat the point of investment as the point at which bonuses are calculated and not legacy issues.

To be honest, anyone in a with profits fund should just get it reviewed to be on the safe side as with profits is a minority fund which can be right under certain circumstances but was, in the past, seen as a product fit for everyone.

But this is exactly what I mean.In the way that your company might be regarded as having additional expertise in handling Pearl policies - because you have people who used to work there and know how things work, so you are more likely to be able to get the best deal for the client.

Yes, we have a big database of information on Pearl but it doesnt reduce the service or quality of advice we give on transferring of other providers. We dont just exclusively deal with Pearl (thank goodness!).