Repensioning from with profits funds

jenney

The IFA who set up my Norwich Union (unitised fund, mainly in with-profits and with-profits guaranteed funds - virtually no difference between fund value and transfer value) and Scottish Equitable (wp endowment and high equity wp fund - transfer value £5,000 less than fund value!) offers no ongoing advice.
I was going to follow the repensioning idea with Cavendish Online as per the main site repensioning article when I noticed that there may be an issue in transferring non-stakeholder private pensions, ie the suggestion is that having to enter into a new plan loses me any accrued bonuses in my existing plans. It seems rather unfair that I should not be able to repension into the same fund (if it is available or its equivalent) to save on the trail commission.
Can anyone help me to solve this? There is a cryptic comment in the main site article that transfers may be possible if you know what you are doing. I have not contacted my pension providers yet to see if they would be prepared to transfer at the full scheme value. I suppose that might be one solution but previous experience is that the pension providers are not interested in being helpful.
Looking forward to any constructive suggestions.

Debt_Free_Chick

Can you let us know exactly what you want to achieve? Do you want an IFA that does give ongoing advice? If so, you can simply appoint a new IFA who will service your existing plans - the existing IFA has to agree, but then they have to have a good reason for refusing to agree, so that should not be a problem.

EdInvestor

I would suspect if you try to do this you will suffer a transfer penalty and possibly a Market Value Adjuster penalty as well. This is normal when people transfer out or surrender WP policies before maturity.

Not quite sure why you think it would be a good idea to reinvest in WP funds if you can exit without a Market Value Adjuster penalty.

WP funds are not these days usually regarded as an attractive investment option.

EdInvestor

the existing IFA has to agree

Don't think so: AFAIK you can just find a new one and then advise the insurer you have changed over - or let the new IFA do it.

dunstonh

A new IFA can take over without the old one signing it away. It just requires the policyholders signature.

It seems rather unfair that I should not be able to repension into the same fund (if it is available or its equivalent) to save on the trail commission.

What trail commission? Most pensions do not pay any trail. The advisor gets a choice of up front or trail. As you are not getting ongoing advice, he would almost certainly taken upfront.

I have not contacted my pension providers yet to see if they would be prepared to transfer at the full scheme value. I suppose that might be one solution but previous experience is that the pension providers are not interested in being helpful.

If you do an internal transfer, you will suffer penalties/charges on the contract just as you would if it was an external contract.

As it happens, NUs current personal pension contract has lower charges for most people than the stakeholder so, if you have that contract, you could lose more than you think you would gain by moving to a stakeholder.

WP funds are not these days usually regarded as an attractive investment option.

Although I would in general agree, the NU UWP fund is not a bad option and does offer medium risk growth potential without the worries of the legacy issues on their WP fund(s).

jenney

Debt_Free_Chick wrote:

Can you let us know exactly what you want to achieve? Do you want an IFA that does give ongoing advice? If so, you can simply appoint a new IFA who will service your existing plans - the existing IFA has to agree, but then they have to have a good reason for refusing to agree, so that should not be a problem.

Mainly I want to take advice on an ad hoc fee paying basis without paying trail commission. However, if dunstonh is correct (see response below) there is no trail commission - so making the whole repensioning exercise pointless.
My Scottish Eq documentation clearly shows commission of 69.4% year 1, 0% y2, 1.88% y3 and 2.5% in subsequent years. That 2.5% seems well worth saving!

So the questions are:
- do I have to close and reopen, can I transfer, or is there another way?
- which route is best, given in particular that I want to avoid penalties which might outweigh the benefit of the exercise?
- if no one knows the answers do they have any ideas where I can find them?

Many thanks for the contributions already.

dunstonh

Mainly I want to take advice on an ad hoc fee paying basis without paying trail commission. However, if dunstonh is correct (see response below) there is no trail commission - so making the whole repensioning exercise pointless.
My Scottish Eq documentation clearly shows commission of 69.4% year 1, 0% y2, 1.88% y3 and 2.5% in subsequent years. That 2.5% seems well worth saving!

Sounds like your Scot Eq pension is an old one. Many years ago, renewals were paid. Usually often only when contributions were being made. On paid up plans, they would stop. In this case, they sound like renewals rather than trail commission.

So the questions are:
- do I have to close and reopen, can I transfer, or is there another way?
- which route is best, given in particular that I want to avoid penalties which might outweigh the benefit of the exercise?
- if no one knows the answers do they have any ideas where I can find them?

If you pay an IFA to do a transfer analysis and make a recommendation on fee basis, a cheaper policy could be found elsewhere. It would almost certainly not be with the same providers, although you can not rule that out. Even if it was, it would be on the current version of their pension. Meaning that any benefits, such as guaranteed annuity rates, would be lost on transfer. A transfer analysis should identify any guaranteed annuity rates (GAR). Just as you phoning the provider up and asking would. I did a scot Eq pension commencement just before Christmas and it had a 12% GAR. That was nearly double the current market rate.

The providers may also have other funds available internally which are better. Also, just because the advisor is getting renewal payments, does not mean its any more expensive for you. I have a number of contracts running where i get renewals which have lower charges than a stakeholder pension which pays none. You shouldnt mix up remuneration with charges. The two things do not often go hand in hand with pensions.

jenney

Thanks Dunstonh. It is still all rather murky. This kind of conversation just shows how ridiculously over-complicated and opaque the fee structures in these policies used to be (and probably still are). I think I will try and track down the IFA who sold me this policy and he can earn his renewal fee or trail commission (call it what you will) by giving me some advice.

I have read my policy documents before and one thing is clear: the charges are incomprehensible. (And I speak as a lawyer).

Now, to add to the confusion, the distinction between trail commission and renewal fee is rather unclear. I assume that renewal fees come out of the charges levied by the pension provider, rather than out of the contributions before the pension provider levies their fees (but I am only guessing). On that basis, in theory I should therefore not care how the pension provider decides how to spend the fees it extracts from me (except that one has to conclude that this system still results in encouraging IFAs to recommend high fee paying products).

One thing though, are you saying that repensioning to avoid trail commission is a waste of time because there is usually no trail commission associated with a private pension? If that is the case Martin's article on this and the IFA site he recommends (name temporarily escapes me) are a little misleading. Or is trail commission still relevant for stakeholder pensions - if so why has that been allowed to continue?

dunstonh

Thanks Dunstonh. It is still all rather murky. This kind of conversation just shows how ridiculously over-complicated and opaque the fee structures in these policies used to be (and probably still are).

Modern contracts are very clear. Older contracts often had weird and wonderful variations. However, as i said, do not mix up what you are charged with how the advisor gets their remuneration. Also, older contracts can often be cheaper in the long term or offer greater benefits than modern contracts.

Just as now, you can get personal pensions which are cheaper than stakeholder pensions.

On new business an advisor can take all the commission up front, all of it on trail basis or a combination in between. Regardless of the method they chose, the amount of the charge is the same unless the advisor chooses to discount it in some way.

I think I will try and track down the IFA who sold me this policy and he can earn his renewal fee or trail commission (call it what you will) by giving me some advice.

Now, to add to the confusion, the distinction between trail commission and renewal fee is rather unclear. I assume that renewal fees come out of the charges levied by the pension provider, rather than out of the contributions before the pension provider levies their fees (but I am only guessing). On that basis, in theory I should therefore not care how the pension provider decides how to spend the fees it extracts from me (except that one has to conclude that this system still results in encouraging IFAs to recommend high fee paying products).

Just for clarification, trail generally refers to fund based commission. i.e. 0.4% pa of the fund value. Renewals generally apply to contribution based contracts and are usually only paid after a contribution is made. Its often around 2.5% of the contribution made.

As a lawyer, your firm probably has connections with an IFA. Some firms have very strong relationships where office sharing even takes place. Others have just a casual relationship. If your firm has a good relationship with a specific IFA, then it may be better using that IFA. If trail is being paid, the new IFA can get it signed over to him, with your authority, and do the work for you.

One thing though, are you saying that repensioning to avoid trail commission is a waste of time because there is usually no trail commission associated with a private pension? If that is the case Martin's article on this and the IFA site he recommends (name temporarily escapes me) are a little misleading. Or is trail commission still relevant for stakeholder pensions - if so why has that been allowed to continue?

As mentioned, its a choice the advisor makes on how it wants to be remunerated. Trail may be 0.4% of the fund value paid annually. However, in that case there would be no initial commission. So an advisor who has transacted, say, £800 worth or work, could take 10 years to get back that £800 in trail commission. So, it may not surprise you to learn that most advisors will not take trail by itself, on pensions. In which case, getting your pension transferred to an agency which rebates trail would be a complete and utter waste of time. Only if trail is being paid can it be refunded.

I think martins article is aimed at transfers rather than transferring agencies and getting rebates. Transferring to a new provider and doing it on nil commission terms can result in a lower annual management charge (e.g dropping from 1% to 0.6%). That, I believe, is where the article is leading. Transferring is an option as we have said on this thread but it is not an automatic option to end up with better charges or better terms.

Also, the example on that article uses Norwich Union stakholder as the receiving scheme. Norwich Unions personal pension nearly always ends up cheaper than the stakeholder. I wonder how many readers of that article have chosen NU as the stakeholder provider as it was the one in the article without realising it would be cheaper on the personal pension?

Having done over 1000 pension transfers in the last two years, I can say reliably that about 1 in 5 legacy pensions shouldnt be transferred because they are cheaper or have benefits that cannot be matched by modern plans.

If you want to summarise anything from this it would be that transferring a legacy plan is not always the right option to get lower charges and that what you pay in charges is not always reflected in what the advisor is paid as commission (initial, renewal or trail).

EdInvestor

Hi jenney

jenney wrote:

The IFA who set up my Norwich Union (unitised fund, mainly in with-profits and with-profits guaranteed funds - virtually no difference between fund value and transfer value) and Scottish Equitable (wp endowment and high equity wp fund - transfer value £5,000 less than fund value!) offers no ongoing advice.

First of all let me say that if your main aim is to reduce charges, then the best way to do it is probably not to try to "repension" back into the same fund, but to move out of the WP funds - which feature high charges - and possibly out of the pension contracts themselves - which may feature additional high charges - into a new low cost pension wrapper which gives access to new strongly performing funds whose charges are rebated

I was going to follow the repensioning idea with Cavendish Online as per the main site repensioning article

Which is basically what this article leads to, as DH says.....

But

I noticed that there may be an issue in transferring non-stakeholder private pensions, ie the suggestion is that having to enter into a new plan loses me any accrued bonuses in my existing plans.

This specifically applies to WP plans. IMHO repensioning isn't really possible with WP.

When you transfer out of a WP fund early you may be subjected to
a) a market value adjuster MVA penalty, which adjusts the value of the fund as written on the bonus statement to reflect the state of the stockmarket and its effect on your particular slice of the WP fund

and/or
b) a reduction in the total amount of bonuses that your policy has earned over the years. This is the flip side of the extra money which usually gets added on to your policy value if you stay to maturity. (By this I do not mean the terminal bonus, which you will receive pro rata if you transfer now, but an extra bit that gets given out to loyal people who stay on.)

It seems rather unfair that I should not be able to repension into the same fund (if it is available or its equivalent) to save on the trail commission. I have not contacted my pension providers yet to see if they would be prepared to transfer at the full scheme value.

Very unlikely that you will be allowed to go out at full value and then turn the money around and come back in.This is not fair to other policyholders who would be paying out more to you than your fund is worth. It is basically banned at most lifecos.

The basic thing you need to consider is

Should you transfer these pensions out of the WP fund and into

a) other fund(s) and a lower charge at the same providers
b) a new provider offering cheap charges and good funds
c) a discount arrangement such as a low cost online SIPP provider giving cheap access to a wide array of funds ( or to direct share investment) at low or nil annual fee.

Three questions:

Roughly how much money are we talking about here?

Do either of these WP pensions offer any guaranteed annuity rates or guaranteed rates of return, and if so at what level?

How old are you?

jenney

Dear Edinvestor

Thanks for your input.

In answer to your three questions:

Roughly how much money are we talking about here?
As at 17.4.05:
Scot Equit WP Endowment £23,076 (closed to further contributions);
Scot Equit High Equity WP Fund £23,136
But transfer value £42,212. The WP Endowment Fund has a regular bonus rate currently 0.25% on basic benefit and 0.25% on attaching bonus (this is meaningless to me). For the High Equity WP fund the regular bonus rate is currently 0.5% and is said to be reflected in the unit price (also gibberish).
The terminal bonus appears to be £3022. None of the bonus rates are guaranteed.

The Norwich Union Fund values are:
UK Equity £10,397
WP £17,604 (final bonus £288, market value reduction £482) Bonus rate was 4%
WP Guaranteed (final bonus £2491, market value reduction £89) Bonus rate was 4% and is guaranteed at that level.
The final bonuses are not guaranteed.

I have two other very small minor funds with other providers and a frozen final salary scheme pension which could be quite valuable.

Do either of these WP pensions offer any guaranteed annuity rates or guaranteed rates of return, and if so at what level?
Seemingly no guaranteed annuity rates, although, as I have said before, the policy booklet is almost a model of incomprehensible drafting. 3% compound growth seems to be guaranteed in the SE WP funds. The NU WP Guaranteed fund seems to guarantee the 4% annual bonus.

How old are you?
I am 40 years old.

I hope this information is useful. I am happy to carry on scrounging for advice but please feel free to tell me when you have had enough. However I do find it very difficult to find a IFA who is able to advise sensibly on the merits of respective funds and compare charges. For this reason I have shied away from investing heavily in pensions.

The key seems to be whether any future cost savings and possible better performance will outweigh the transfer "penalties". The SE frozen WP fund looks a dog.

I suppose I will have to get to grips with "A" day next.

Many thanks again.