Stopping pension payments: what happens

Murdina

I've had a pension with Friends Provident for 13 years. It is worth about 2/3 of the value of the premiums and tax relief. I now earn very little (compared to when I took it out) & pay in about £3,000gross with tax relief.

I want to stop paying into it as it seems to be a total waste of time. What will happen to the policy if I stop? Is there likely to be any point in trying to transfer it to another company?

EdInvestor

Check the transfer value, any exit penalties and the annual charges payable.What fund(s) is the money invested in?If With profits, you may be best to switch to better funds within the existing policy,, remaining with FP overall.Check for any guarantees if planning to transfer, as these could be valuable and ask what will happen if you stop payments in (the answer may be nothing, or a rise in annual charges).

If there is an MVR, it could come down when FP announces its bonuses shortly so could be wise to wait a while if switching or transferring out of WP.

dunstonh

What will happen to the policy if I stop?

You will get less income in retirement

Is there likely to be any point in trying to transfer it to another company?

To answer that we need to know about the pension you have and where its invested. Being in a loss position after 13 years doesnt seem right. The last 10 years have been pretty awful for basic investments but you should still be in surplus.

Murdina

Many thanks to both. It was invested most of the time in the Friends Provident stewardship fund.

Would my best course now be to go to an IFA and ask about a transfer elsewhere rather than just stopping then? As things stand, I would prefer not to be throwing good money after bad. When I took it out it project a pension of 4k to 7k per annum. This is now down to £1400 which is hardly going to be worth having.

dunstonh

Would my best course now be to go to an IFA and ask about a transfer elsewhere rather than just stopping then?

If you cant DIY then use an IFA. That fund used to be quite good but it went off the boil.

As things stand, I would prefer not to be throwing good money after bad.

You are not really. You are mostly seeing the after effects of a major recession hitting the markets. Although they have recovered somewhat recently. The units you buy after a market drop tend to be the ones that make the most money in future as you get more units for your contribution.

The problem is that you currently have eggs all in one basket and that basket isnt great. It should either be possible to alter the fund selection within that pension or it may be that a new pension is better (many of the modern pensions are better than those of 5 or 10 years ago).

When I took it out it project a pension of 4k to 7k per annum. This is now down to £1400 which is hardly going to be worth having.

Thats because they changed the method of projection. Not because of the pension being bad or getting worse.

Murdina

For reasons connected with my spouse's employment I am very limited to where I can invest so delayed switching in the past as even within the same company there are sometimes funds I cannot use - it is also difficult for me to be proactive as I have to chose a fund then wait for him to say it is OK and often he forgets and then I forget!

I take the point about averaging and also the adjusted method for the pension calc though. It just seems to me I would have done better buying unit trusts (into which I have been putting £60 a month for about the same period & they have kept up well). I know there is the tax relief, and the possible tax free lump sum, but even so.

Many thanks for your guidance. I do appreciate it. I will try an IFA though again they may be frustrated by waiting on my other half to approve any funds suggested!

I did approach an IFA 4 years back but they made it clear my funds were too modest to be of interest to them and other things then intervened & life only just getting back on track.

dunstonh

It just seems to me I would have done better buying unit trusts (into which I have been putting £60 a month for about the same period & they have kept up well). I know there is the tax relief, and the possible tax free lump sum, but even so.

This is a misconception. Albeit a common one.

The same unit trust funds are available on pensions. It doesnt matter if you have the same fund in a pension, unit trust or ISA. It will perform the same. The only difference will be the tax and maturity process.

So, had you held that same unit trust you have inside the pension "wrapper", you would have got the same return. Equally, that stewardship fund is available in unit trusts. So, had you held that one with your £60pm you would no doubt be complaining about the unit trust as well.

I did approach an IFA 4 years back but they made it clear my funds were too modest to be of interest to them and other things then intervened & life only just getting back on track.

That can be the case. Many IFAs focus on the wealthier side of the market and are not interested in smaller pots. However, there are IFAs the will cater for you.

Murdina

How do I identify ones who might be interested other than calling them all up one by one? Any tips?

dunstonh

Murdina wrote: »

How do I identify ones who might be interested other than calling them all up one by one? Any tips?

No real way to tell without asking them. However, if you go for a local company you will probably find they are more willing to deal with local clients even in what they may class as smaller cases as reputation locally is important.

EdInvestor

Murdina wrote: »

For reasons connected with my spouse's employment I am very limited to where I can invest so delayed switching in the past as even within the same company there are sometimes funds I cannot use - it is also difficult for me to be proactive as I have to chose a fund then wait for him to say it is OK and often he forgets and then I forget!

Since the spouse problem is presumably not going to go away, it may be sensible to conduct a completet rejig of this pension, redistributing the total accumulated funds over a portfolio of say 5/10 fund choices (depending on total amount available) and splitting the contributions similarly, as they go in.

That way you can get them all approved at the start and since you've already covered the waterfront, you won't need new switches if one underperforms for a while as it won't have much effect due to the existing diversification.You could leave out chronic underperformers or other unsuitable funds (eg Japan, cash, perhaps gilts, or any thing else that doesn't match your risk profile.


The mistake has been to leave all the money in the Stewardship fund alone.Spread it around and the occasional future underperformer shouldn't cause a problem.

You could also take the opportunity to transfer to another provider,but IIRC the FP offering is quite reasonable so may not be worth spending the money.