Best option - Transfer or Paid Up

acrickie

Hi,

Due to a change in circumstances I have to decide what to do with my own and my wife's pension plans, which were being funded by my own company. Currently I can no longer pay into these schemes. From what I have learned I have two basic options:
1. Transfer to another scheme.
2. Make the policies paid up.

Unfortunately either way I will lose money, but the paid up option loses less. Of course if the funds do not perform as well as alternative funds this may be cancelled out. Both pensions are with Scottish Life.
My fund is currently valued at about £68K but transfer value is only £60K cost of making paid up was about £4K. Currently the funds are 80% Global managed and 20% UK equity.
My wife's fund is about £28K, transfer is £25K, can't remember what the cost for making paid up wasbut think it was about £2K. Funds are 20% Managed 80% UK equity.

I also have another paid up fund with Scottish Life worth about £84K which I do not have to do anything with but could move if it was worthwhile doing so.

I estimate I have about 15 years before I retire and would like to know what is the best way to jump?

thanks

dunstonh

Unfortunately either way I will lose money

Why?

Of course if the funds do not perform as well as alternative funds this may be cancelled out. Both pensions are with Scottish Life.

Scot Life have quite a good fund range. Their contract for the last 3 or 4 years is low cost. Older Scot Life contracts often have guaranteed annuity rates on unit linked funds. They can be very attractive and worth keeping.

I estimate I have about 15 years before I retire and would like to know what is the best way to jump?

No-one here can answer that. You need a transfer analysis and information on why you are looking to transfer. That means knowing about your contract, knowing what your current and future needs are (e.g. is drawdown likely or annuity purchase or phased income, what age etc etc) and a bit more about your personal circumstances, risk profile and investment knowledge. How you would purchase and where would come into play as well.

acrickie

Thanks for the quick response!

Why?

Because either way the fund value goes down - which I assume means I lose out?

Scot Life have quite a good fund range. Their contract for the last 3 or 4 years is low cost. Older Scot Life contracts often have guaranteed annuity rates on unit linked funds. They can be very attractive and worth keeping.

No guaranteed annuities - I checked that!

No-one here can answer that. You need a transfer analysis and information on why you are looking to transfer. That means knowing about your contract, knowing what your current and future needs are (e.g. is drawdown likely or annuity purchase or phased income, what age etc etc) and a bit more about your personal circumstances, risk profile and investment knowledge. How you would purchase and where would come into play as well.

I am not necessarily looking to transfer - my take is that I will lose less (the funds will decrease by less) if I convert to paid up but that is a very simplistic view. Ideally I know I should go to a financial adviser who could examine all the options - however my problem with this is I could end up paying out for this only to find I should have just converted to paid up inthe first place!

I don't really have the time to study all the options myself and I don't have the money to pay for someone else to look into it properly.

As far as your other points are concerned, I have no idea what my future needs will be, nor do I have any knowledge of investments. From the limited research and information I have been able to find I am working on the assumption that I would purchase an annuity but would expect to be in a better position to pay for appropriate advice before that decision was made.

thanks

jamesd

Why can't you drop the payments to 10 a month? Or whatever the minumum is? There's probably a doable option short of ceasing completely and you can also ask if you can simply suspend making payments for a while.

Why would the fund value go down if you left it with Scottish Life? If you're thinking that the value will go down forever just because of the current decrease, think again. It's just a part of the usual cycle, a good time to be buying at cheaper prices.

Investment performance causes variations in value but your 80% global to 20% UK mixture is one that I am definitely keen on for long term (and even short term) growth.

I'm not so keen on your wife's mixture because of the limited global side and the lack of explicit bonds to rebalance into and out of regularly. If the idea is to be more cautious she might consider switching to 30% global, 30% corporate bonds and 40% UK.

"Currently the funds are 80% Global managed and 20% UK equity. My wife's fund is ... 20% Managed 80% UK equity."

Is this the way new money going into the funds is split or the way the current value of the funds is split? Normally you'd want to swap them around to keep your target split so if that's not the current split you might want to adjust to get back to target.

For the other Scottish Life fund, ask Scottish Life about merging it, whether there's any reduction in value or change in fees or fund charges for doing so. Different pension policies can have different per-fund annual charges and you wouldn't benefit from switching the old one if it has lower charges than the new one.

At about 180k you have more than enough total pension fund value there that IFA's like dunstonh who have competitive charging would be more than happy to manage for you for maybe 0.5-1.5% initial charge (or less, negotiate) and 0.5% or less a year from the normal commission to do annual rebalancing and reviewing. That 0.5% is 900 a year to start and is enough to leave room for negotiation. You're sure to also find IFAs who will happily charge you 3% initially and 0.5% a year to do no ongoing work, so do shop around to find one you like who also offers you a good deal. Whoever you go with, if you go with anyone, you should be able to structure it so you don't have to pay any out of pocket money up front. An IFA can strike a deal with you where the 0.5% commission above a certain level is returned to your pension, or do so after a certain time has passed to pay for the initial setup work.

My recommendation: find a local IFA (all three letters, not just FA and not a bank) and go for an initial one hour introductory meeting to discuss their fees and your situation. They should be able to give you an initial indication of whether it's likely to be worth moving anything during that meeting at no cost even if there's no work for them to do. Which might happen if they can't find an alternative pension that offers you a better deal.

If you want a second opinion about fees and what they advise you to do, just ask here.