With Profits pension plan

mramra

I have a personal pension plan with Zurich (formerly Eagle Star) which was set up and paid into by myself and employer for ten years or so. I am now with a different employer and have a second personal pension plan investing in funds.

The Zurich plan is worth around £60k non-protected rights (paid by me and employer) plus £16k protected rights (S2P opt out payments).

Around 40% of the plan's current value is in the Managed 2 EP fund while 60% is in With Profits 5 EP. I currently pay in a token £50 per month gross (the minimum allowed) as my major contributions go into my second plan. I am also still contracted out of S2P with the payments going into the Zurich plan (approx. £2k last year).

I am considering my options with the Zurich plan: to keep going at £50 per month or look at transferring to my new plan. From what I now know about With Profits funds, I understand they are best avoided due to the fact that bonuses (annual and final) are at the whim of the insurance company. However, there would probably be a market value reduction to pay to transfer out. Another factor to consider is that the With Profits plan is now only 25% invested in shares so the opportunities for growth are less - I am only 35 so plenty of time before retirement.

To aid my decision, any comments or relevant factors I have missed would be most welcome.

Thanks in advance, mramra

EdInvestor

You should also check there are no valuable guarantees (eg annuity rates) attached to the WP section of the pension, which would mean you should stay.If not, a change sounds sensible as the Zurich WP fund is a poor performer.

You could choose to simply pick new funds for the money within the existing Zurich pension - how do the charges compare with the other pension?

Alternatively if the fund choice and charges are better at the other pension, you could amalgamate them.

mramra

I just had a pleasant surprise when I called Zurich. I was expecting to hear that a MVR would reduce the transfer value but in fact the transfer value is significantly higher than the holding value (£85k vs £77k).

Apparently this is due to the low guaranteed growth rate of 1%. As this is a low target and easily achieveable, the terminal bonus is high - I didn't expect to be getting any terminal bonus if transferring out so this was good news.

The advisor confirmed that I can select different funds within the plan and he is sending me a list.

I will look into the charges and any guaranteed annuity rates, thanks for the advice.

dunstonh

in fact the transfer value is significantly higher than the holding value (£85k vs £77k).

Its not higher. The values get stripped out and they dont include the final/terminal bonus in their current value. It is there but it is shown differently.

The advisor confirmed that I can select different funds within the plan and he is sending me a list.

I will look into the charges and any guaranteed annuity rates, thanks for the advice.

If you are using an adviser then it is their job to verify if they exist or not. If they havent then they have failed in their responsibility and you should immediately question their ability.

mramra

Thanks for the reply.

There may have been some misunderstanding due to my use of the term 'advisor'. I meant customer service advisor not an IFA.

The customer service advisor did use the two terms 'holding valuation' and 'transfer valuation' and said these values are different. My misconception was that terminal bonuses are only applied at the end of the term whereas it seems that you get a proportion of the expected terminal bonus if you transfer before the end of the term. Is my understanding correct here?

dunstonh

There may have been some misunderstanding due to my use of the term 'advisor'. I meant customer service advisor not an IFA.

You mean someone that probably has no financial qualifications and background and is probably on a short term contract with no real interest in what they are doing

My misconception was that terminal bonuses are only applied at the end of the term whereas it seems that you get a proportion of the expected terminal bonus if you transfer before the end of the term. Is my understanding correct here?

Terminal bonuses accrue as you go along. Some providers will include them in their running values, some wont. However, the transfer value will include the terminal bonus accrued to date. It will also include any MVR and transfer penalties. Some providers will show all those individually, some will bundle it all in as a single transfer value.

You need to compare projections on the Zurich to alternatives using the transfer value. That is the best way to compare costs.