Inurance Bond -- Good or Bad?????

Apreciar

I am about to draw a personal pension, the tax free element that is available is just over £80k, an IFA has advised that I should take the full amount and invest it in an insurance bond with Norwich Union or Prudential. Does this sound good advice and what are the pros and cons of this sort of investment?

Chrismaths

It may or may not be.

It depends upon your tax position (Basic rate? higher rate? how close to threshold?) - and how much commission he is taking on the investment. He should have given you an illustration that will tell you how much he is being paid. These types of investments CAN be very expensive, or very cheap, depending upon the terms the IFA sets up for you.

Post back and we'll see.

Apreciar

Once the pension is drawn I would just be a higher rate taxpayer. The information regarding the bond was given off the record by telephone after an initial free consultation. Before meeting and discussing the matter with him officially I wanted opinions/help to arm me in the meeting and give me an idea of what I should be asking and expecting.

dunstonh

Oh great. All the regulars will read your post and will be able to tell you exactly how this thread is going to progress.

Ignoring rights or wrongs at this stage, NU do come out best on charges presently (but wont after 14th August) and have some very good funds which can result in a very low reduction in yield over 5/10 years. Pru though are not even close.

As CM says, there are benefits to these if they match your requirements and they can be very cheap or very expensive. For example, you can get that NU bond with, I think, 107% allocation on 80k through a new model IFA but it would be closer to 102.5% with a full cost IFA. Thats £3600 difference for the same product through two different types of IFA.

edit: change made as you posted the above at same time....

Higher rate taxpayers can benefit more from onshore/offshore investment bonds than OEICs/UTs. So, after ISA allowance used, bond would be a valid recommendation.

Also, your comments about the method you used to chat now explains why Pru was mentioned. In general enquiry calls like this you do tend to stick to known brands as examples.

montycat_2

I have an Nu iNsurance Bond and ,I am very pleased with it .I did mine through the Portman and ,got the commision paid to me through a 6 month savings bond at 7 %.
I invested £78,000.

payless

montycat wrote:

I have an Nu iNsurance Bond and ,I am very pleased with it .I did mine through the Portman and ,got the commision paid to me through a 6 month savings bond at 7 %.
I invested £78,000.

are you saying they refunded the commission ( I assume 7% ) into a savings account, or that they split the investment- part into Inv bond, part into a artifically high interest bearing account. ( their loss on this extra interest interest being funded by the commisson from the bond) ?

Chrismaths

Higher rate taxpayers can benefit more from onshore/offshore investment bonds than OEICs/UTs. So, after ISA allowance used, bond would be a valid recommendation.

True, but on £80k, CGT is unlikely to be a major issue, and having an onshore IB would lead to paying 20% on all unrealised gains, with no allowance - which is why I'd tend to lean towards unwrapped investments (oeic etc). I'm a great believer in using ALL of your allowances before considering an investment bond.
I suppose it also depends on if you require access to the income/capital from the £80k.

dunstonh

Although an invesment bond with a RIY, on advice terms, of less around 1% p.a. can offset the additional tax within the bond.

Also, are you going to live more than 20 years or be a higher rate tax payer all through retirement or just for a short period within?

Chrismaths

You just kicked me off thinking on that one dh, so I kicked some figures around.

I assumed that the underlying investments were equity based, and produced 6% capital pa and 2% income per year.

Taking your 1% RIY figure, you'd need a RIY on the OEIC/UT portfolio over 20 years of 1.64% to equal the tax lost, for a higher rate taxpayer. This also fails to take into account the £7000 pa ISA allowance (possibly £14,000 if married). Figures swap around a bit if you change the mix of income/capital growth etc, but that's still a pretty big kick you'd have to take to get down to there...

montycat_2

Payless ,from what I can remember ,the Portman are paid the commission but ,because they are a Building society it got passed back to me in a 6 month high interest bond .
It was a dual bond -not advertised on their website .1/3 went into the 6 month bond ,the rest into a high interest 6 month bond .

ReportInvestor

montycat wrote:

the Portman are paid the commission but ,because they are a Building society it got passed back to me

In our wonderful world of financial services, a financial adviser like dh - even though he is not a mutual and, unlike the Portman, does seek a healthy profit for himself so that is not doomed to reply to MSE threads into eternity - could pay you back more commission than the Portman, in spite of the Portman's cuddly status and economies of scale advantages over dh.

But another IFA might or might not beat the Portman.