Advice on Personnal Pension

Jandy100

I have a 50-75 Personal Pension Plan with the Sun Life Financial of Canada that I have been paying monthly £40.00 (£50.00 with tax reflief contribution) since 1991. I am not that knowledgable on pensions and when sold to me I was "seduced" by the then representative that I could enhance the plan by opting out of SERPS (S2P) which I have since when the plan commenced. I have been recently back tracking the performance of my plan and have seen that the overall value of my pension has radically reduced over last 12 months. Currently the value of my plan despite the years I have paid my monthly payments is a lowly £19,254.19 (combination of Protected & non Protected rights). I also have a Redress Plan which has a value of £3,909.30 (non Proteced rights only). What does Protected and Non Protected Rights actually mean???


I have been searching around and the general concencus seems to recommend that I should "contract back into SERPS". What does this mean exactly????

I have since changed employment to a company that offers a very generous pension plan which is non contributory and pays 10% of my salary into a SIPP with Hargreaves Lansdown. The company contribution is approximately £400 per month, and at 44 years of age seems to be a good benefit at this stage of my life. I can make contributions should I wish.

I am hoping I can get some reasonable advice on this site due to my general lack of knowledge.

Should I contract back into new S2P or old SERPS and how do I do this?
Should I transfer the Sun Life Personal Pension into the Company Pension, Hargreaves Lansdown SIPP, and what will be the benefits to me?


Any help & comments to increase my knowledge & awareness will be greatly appreciated.....

dunstonh

I have been recently back tracking the performance of my plan and have seen that the overall value of my pension has radically reduced over last 12 months.

Which is not unsurprising given the events of the markets. However, you should have seen a good improvement in the last month or two. The drop of last year was similar in size to the drop in 2000-2002. So, its not an uncommon event. The size was bigger than usual but drops of more than 10% occur on average every two years. Drops are actually a good thing for regular payers as they are now buying their units cheaper. Its only if you are going to take benefits in the next couple of years that it can be an issue.

What does Proteced and Non Protected Rights actually mean???

protected rights is the pot from contracting out. Non protected (or ordinary) rights is the pot built up with your personal contributions.

I have been searching around and the general concencus seems to recommend that I should "contract back into SERPS". What does this mean exactly????

Why should you contract back in? You will find there is little consensus for contracting in or out. There are pros and cons to both and neither option is risk free. Its just a different type of risk and you really have to look at the benefits of both and disadvantages of both to see which is best to you.

A lot of insurance companies have bulk contracted people in as a way of reducing liability if the person is invested in obsolete funds with limited potential. That seems to have started the impression that you should contract in (people saying my insurance company contracted me back in because they thought it best and getting spread around like that. In reality, they didnt do it because it was best for the policyholder but because it was best for them).

You should also note its not called SERPS any more and hasnt been for some time. Its S2P (state second pension). So, if you are reading sites that are old, then expect old information. Also, the rebates were increased recently for most ages. So, if the sites you visit are old then the info is likely to be obsolete as well.

I am hoping I can get some reasonable advice on this site due to my general lack of knowledge.

What are you doing investing in a SIPP, which is designed for the more knowledgeable investor to utilise more advanced investments, if you dont have the knowledge? SIPPs are the most expensive option. Now, that doesnt make them bad. If you utilise the features and options of a SIPP then the extra costs can make it worthwhile. However, far too many people are in SIPPs who are not utilising those options and features and paying a lot more for it. Often seduced by phrases like "low cost SIPP" thinking it means low charges without realising they mean low cost in SIPP terms, not stakeholder or personal pension terms.

Should I contract back into SERPS and how do I do this?

You should contract in if its best for you or remain contracted out if you dont. Its a personal decision based on your opinion, risk profile, how you invest, how much you earn, how old you are and a few other lesser things. Some will want to remain contracted out until its abolished in 2 years and some will want to contract back in. The contracting out sticky at the top of this forum explains pros and cons more (read it backwards as the early posts are obsolete due to changes).

Should I transfer the Sun Life Personal Pension into the Company Pension, Hargreaves Lansdown SIPP, and what will be the benefits to me?

SLFoC pension is unit linked and has a limited range of internal funds but generally on par with those offered by modern stakeholders. The biggest difference will be the investment funds. The SIPP will probably be more expensive but cheaper other options are available. You havent told us anything about the investments in the SIPP or the SLFoC plan, so we cant really tell you if you will benefit or not. Plus, we dont have the figures to do a cost analysis so again, cant tell you there only. Just what our gut feeling will be.

Any help & advice will be greatly appreciated.....

Its not advice. What you read here is discussion only. Even those of us authorised to give advice cannot do so on the board. It would breach board and FSA rules. if you act on things written on this board and its wrong you dont have the usual consumer protection that you get with advice.

EdInvestor

Jandy100 wrote: »

I have been searching around and the general concencus seems to recommend that I should "contract back into SERPS". What does this mean exactly????

There are two state pensions, the basic and the earnings related S2P (formerly SERPS).Normally when you pay NI conts, you are allotted credits to both these pensions.But when you contract out, instead of giving you a credit for S2P, the Government pays a cash rebate into a pension of your choice (you still get credited for the basic state pension).

There is a risk that the money in your pension will not perform well enough to pay you an equivalent pension to what you would get if you tayed contracted in to S2P.On the other hand, if you take the money into your own pension you can get access to it much earlier (age 55, rather than your state pension age) and you can take 25% of the value in tax free cash.

In 2012,contracting out into personal pensions/SIPPs etc is to be abolished, so my suggestion is that you may as well stick with it now as you will be automatically contracted back in to S2P in three years time.

I have since changed employment to a company that offers a very generous pension plan which is non contributory and pays 10% of my salary into a SIPP with Hargreaves Lansdown. The company contribution is approximately £400 per month, and at 44 years of age seems to be a good benefit at this stage of my life. I can make contributions should I wish.

Lucky you, what an excellent deal

Should I transfer the Sun Life Personal Pension into the Company Pension, Hargreaves Lansdown SIPP, and what will be the benefits to me?

I'd suggest now's the time for you to learn a bit more about investing.Have a close study of the info on the HL site, especially in terms of what funds you might choose ( start with 4, 100 quid into each one,you want a range of risk levels, and in different asset classes (shares, bonds, property,etc).

Take your time ,there's no rush.

Ask Sun Life for a transfer value of your various pensions and also funds the money is invested in now. Then we can get a better idea of what you might do with the lump sum.

Jandy100

Many thanks to dunstonh, and EdInvestor for their comments. Was a great help. Thaks again