Freezing a Pension?

edited 30 August 2010 at 1:48PM in Pensions, Annuities & Retirement Planning
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TonyKentTonyKent Forumite
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I am currently paying £253 per month into a private pension (Abbey Life) in addition to my state pension (Phoenix Life). I have just reviewed my annual statement and it would appear the prediction for my retirement fund, accessible in 4 years, is gradually decreasing year on year.

I should like to ask why I should not consider freezing the pension in question and instead invest the money each month into a ISA?

How do I go about freezing the pension with Abbey and what might the drawbacks be?

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  • CLAPTONCLAPTON Forumite
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    you simply stop paying into the pension... the money still stays in the fund and grows or falls depending upon whatever you have invested in
  • dunstonhdunstonh Forumite
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    I have just reviewed my annual statement and it would appear the prediction for my retirement fund, accessible in 4 years, is gradually decreasing year on year.
    1 - It is not a prediction. It is an example projection using a number of assumptions.
    2 - Are you sure its decreasing? It should have seen quite a jump over the last year. Its possible the assumptions have changed (i.e. lower projection rates being used, or joint annuity instead of single life or indexed annuity instead of level)
    I should like to ask why I should not consider freezing the pension in question and instead invest the money each month into a ISA?
    Put the same funds in an ISA and you get identical returns. The tax wrapper you use (pension or ISA) has no impact on the rate of return. Just the taxation and maturity method.
    How do I go about freezing the pension with Abbey and what might the drawbacks be?
    You cant freeze personal pensions. You make them paid up. They will still be subject to investment returns. You can alter the funds though.

    A lot of old Phoenix plans have valuable guarantees which are worth keeping (a lot don't as well but its always worth making sure). So, if you dont know what you doing, then making the pension paid up could be a very bad option.

    Based on your first post, you dont appear to really understand the projections or your investments. So, dont make a snap decision as it could cost you a lot of money.
    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.
  • sandsysandsy Forumite
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    TonyKent wrote: »
    I am currently paying £253 per month into a private pension (Abbey Life) in addition to my state pension (Phoenix Life). I have just reviewed my annual statement and it would appear the prediction for my retirement fund, accessible in 4 years, is gradually decreasing year on year.

    It should only have dropped between last year and this year if the current value of the fund (on which it is based) had dropped - as none of the assumptions governing annual pensions statements changed between last year and this year (unless something else was different as dunstonh said).

    If the fund dropped, this is as a result of recent market movements rather than anything to do with the projection itself.
  • dunstonhdunstonh Forumite
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    as none of the assumptions governing annual pensions statements changed between last year and this year (unless something else was different as dunstonh said).

    Quite a few providers are moving to SMPI or fund based projections rather than the FSA maximums. I havent seen an Abbey Life recently but a phoenix one I did a few weeks ago used lower than standard projection rates yet that was for an equity fund so there was no reason for them to do so other then Phoenix choosing to make that change.
    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.
  • sandsysandsy Forumite
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    dunstonh wrote: »
    Quite a few providers are moving to SMPI or fund based projections rather than the FSA maximums. I havent seen an Abbey Life recently but a phoenix one I did a few weeks ago used lower than standard projection rates yet that was for an equity fund so there was no reason for them to do so other then Phoenix choosing to make that change.

    I meant that SMPI assumptions for annual statements didn't change. Sorry if that wasn't clear.

    I appreciate that some providers might have chosen to reduce the 7% in line with their point of sale projections, following the FSA's Dear CEO letter on projection rates to insurers. Typically, however, point of sale illustrationsand SMPI projections are undertaken on different systems. However, in the same way that the FSA 7% was a maximum, so was 7% for SMPIs. Providers have until the end of this year to change their systems for POS projections following the letter.
  • dunstonhdunstonh Forumite
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    I appreciate that some providers might have chosen to reduce the 7% in line with their point of sale projections, following the FSA's Dear CEO letter on projection rates to insurers. Typically, however, point of sale illustrationsand SMPI projections are undertaken on different systems. However, in the same way that the FSA 7% was a maximum, so was 7% for SMPIs. Providers have until the end of this year to change their systems for POS projections following the letter.

    Its a nightmare. All the providers using different rates as they interpret the guidelines. Consumers getting statements one year at 7% but next year it could be 5%. I saw a Royal London one last week that used 7% if you were more than 15 years away but it reduced the projection rate for each of the last 15 years. Not in straight line terms but each individual year. Therefore making it impossible to compare against other schemes.
    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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