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With Profits withdrawal fee

Hi

Me and the other half are buying a house and using his Scottish Widows with profits bond as a deposit

He has had it for 13 years (so is well over the 5 year limit for taking out) but when he asked about having the money (29k) he was told to discourage customers from taking out their money there was a 'market level adjustment fee' of over £3k

This would not have been the case if he had taken the money out last year and Scottish widows are reviewing the fee in June, when it may be removed or will probably increase! But we need the money now for our deposit so any advice on how we can avoid paying this would be greatly appreciated!!

Anyone any ideas???

From

Two frustrated first time buyers

Comments

  • jm28cardiff
    jm28cardiff Posts: 210 Forumite
    You cant avoid it. If you dont want to pay it, dont take the money out until the market value adjustment is removed...which could be a long time!
  • dunstonh
    dunstonh Posts: 118,553 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Combo Breaker
    Scottish widows are reviewing the fee in June, when it may be removed or will probably increase!

    It is unlikely to increase. More likely to remain the same or get slightly lower but it really depends on market movement between now and then.
    any advice on how we can avoid paying this would be greatly appreciated!!

    There is none. Its all down to investment returns and that is unknown.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • Myrmidon_J
    Myrmidon_J Posts: 287 Forumite

    ... when he asked about having the money (29k) he was told to discourage customers from taking out their money there was a 'market level adjustment fee' of over £3k.

    This ensures that investors receive a fair share of the underlying assets in the fund. Your policy is essentially "worth" £26K, but the nature of it necessitates the MVA.

    'With Profits' policies have often been criticised (on the boards) because of this practice; however, it is entirely logical and the effects should have been described to you when the policy was taken out.


    ... we need the money now for our deposit so any advice on how we can avoid paying this would be greatly appreciated!
    You cannot avoid paying the MVA if you fully surrender your policy now. Options:

    1. Wait. The MVA may decrease (or it may increase), but this depends on investment performance.

    2. Surrender the policy anyway and accept the MVA. Is £26K worth more to you as an 'investment', or as a deposit? How desperate are you to buy the house now?

    3. Make a partial withdrawal, using other funds (savings, etc.) to make up the difference. Most 'With Profits' policies permit a withdrawal of between 5% and 7.5% per year, MVA-free.

    Some, most notably the Prudential, permit one withdrawal of up to £25K per year, MVA-free. I don't think Scottish Widows offer this facility, but check with your provider.

    4. Do not buy the house just yet. Instead, save as much as you can, make use of the "free" withdrawal this year and next (£2,600, at least), and then look at your options again.

    Good luck! :)
    For the avoidance of doubt: I work for an IFA.
  • Energize
    Energize Posts: 509 Forumite
    £3k!? Don't charges like that usually fall under the "unfair terms in consumer contracts regulations 1999" like the excessive bank charges did?
  • agsnu
    agsnu Posts: 1,457 Forumite
    Energize wrote: »
    £3k!? Don't charges like that usually fall under the "unfair terms in consumer contracts regulations 1999" like the excessive bank charges did?

    Not really, no. Unless you think it's unfair that people should be exposed to any risk of their investments falling in value.
  • dunstonh
    dunstonh Posts: 118,553 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Combo Breaker
    £3k!? Don't charges like that usually fall under the "unfair terms in consumer contracts regulations 1999" like the excessive bank charges did?

    Not a close comparison. The charge is there because the value of the underlying assets have fallen. If the underlying fund is say £20 billion and the values without MVR are £25 billion, then its easier to understand why MVRs exist.

    Had it been in a balanced managed fund (which is typically the closest match on unit linked funds) then the value would have just fallen 25%. The WP fund only offers capital guarantees at certain points (Death, maturity and certain exit points). Not in the interim.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • dunstonh
    dunstonh Posts: 118,553 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Combo Breaker
    With-profits are so opaque though. Nobody really knows how much the underlying assets have fallen in value though. You've got to take the insurance company's word for it. And when the value of the underlying assets rise you don't get the full benefit of it. To be avoided IMHO.

    They are certainly not that attractive any more with the exception of Pru and NU. Those two are are the only really suitable ones left and even then its a niche area. However, the logic behind the MVR is sound.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
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