Unitised With Profits Pension

tony147_2

I have a 'unitised with profits' pension that has been frozen with Standard Life for the last 6 years. This pension has a guaranteed growth rate of 4% payable every year until the plan comes to maturity in 20 years time or 25 years if I work to 65.

I have asked my IFA who is new to me as my previous IFA retired to review my pension. My IFA is advising me to get out of 'with profits' as you don't really know what you will get until the plan matures, i.e. you may or may not get a final bonus.

Should I be getting out of 'with profits'? my problem is the guaranteed 4% and if I leave Standard Life I will be hit with about 10% MVR.

On another note I have another pension with them that is my contracted out part, should I still stay contracted out?

Any advice welcome

dunstonh

Should I be getting out of 'with profits'? my problem is the guaranteed 4% and if I leave Standard Life I will be hit with about 10% MVR.

Its a question that only time will tell. You can only answer it on the basis of what you believe future potential is going to be.

Your IFA believes that he/she can offer alternatives options which will recover the 10% MVR and give you the potential to grow by more than 4% a year. Its highly likely that SL are not going to pay more than 4% a year on that plan. So, you make a judgement call on if you think 7-10% p.a. average is likely given the alternatives (assuming similar or higher risk profile).

On another note I have another pension with them that is my contracted out part, should I still stay contracted out?

Do the benefits of contracting out suit what you are after more than the benefits of contracting in? We dont know what you are after, how much you earn, how old you are or your personal circumstances. So we cannot say which is best for you.

EdInvestor

tony147 wrote: »

I have a 'unitised with profits' pension that has been frozen with Standard Life for the last 6 years. This pension has a guaranteed growth rate of 4% payable every year until the plan comes to maturity in 20 years time or 25 years if I work to 65.

So you are aged 40? Are you paying into any other pension or making retirement savings in other ways (eg via an ISA)?

I have asked my IFA who is new to me as my previous IFA retired to review my pension. My IFA is advising me to get out of 'with profits' as you don't really know what you will get until the plan matures, i.e. you may or may not get a final bonus.

I would agree that a final bonus is unlikely on the 4% fund.On the other hand it is guaranteed at a growth rate which is not to be sneezed at in low inflation times, and is about as safe as you'll ever get at an insurance company. You could perhaps regard it as the "low risk" part of your total retirement savings.

On another note I have another pension with them that is my contracted out part, should I still stay contracted out?

Is this pension also in WP (but without a guarantee)? Even if you do contract back in for future contributions, there could certainly be an argument for moving the remaining pension which will be left behind to something with higher growth potential for the long term.

tony147_2

I have another pension with NU but I only pay £300/month into it, and I'm also trying to do both a cash ISA and a small share ISA (£100/month).
The 'contracted out' pension is again a with profits pension with the same 4% guarantee as my main pension.

My IFA is advising to move to Scottish Life, the figures he is looking at are the charges. He says I can gain £16k over the next 20 years just on the charges alone if the pension grow at 7%, and £26K at 9%, thats after I pay the MVR to leave Standard Life.

EdInvestor

Can you put some fund values to these various pensions?

Also what are you likely to get for your state pension(s)? Get a forecast here:

https://www.the pensionservice.gov.uk

It would be worth asking them if they could do you 2 forecasts, one based on you remaining contracted out until 2012 (when it will be abolished) and the other based on your contracting back in now.

bigbloke45

tony147, I'm interested to hear your new IFA's comment

"I have asked my IFA who is new to me as my previous IFA retired to review my pension. My IFA is advising me to get out of 'with profits' as you don't really know what you will get until the plan matures, i.e. you may or may not get a final bonus."

Has he mentioned that ALL of the alternatives carry the same risk?

Sounds like a sale coming for the commission!

I get the impression that your IFA doesn't really have a clue what he is talking about. Better "ditch and switch" right now!

If you were in a unit-linked plan, would you expect to know your final fund until retierment? So why would you expect the same fron a with profits plan?

dunstonh

I dont think you can make any judgement on that BB. The advice could be very good. The OP is still of an age that can make modern alternatives cheaper than legacy SL contracts. The WP fund has limited potential for growth above 4% (and thats 4% before charges). If the risk profile is medium risk or higher than you are looking at 7% + potential.

It all comes down to potential and opinion. If the presentation of the options is in the manner that nothing is guaranteed but the alternatives are cheaper and offer better long term potential then its a valid recommendation.