help with hubbys pension

loopy_lou_6

dunstonh wrote:

I believe CIS refer to it as £80 per £1000. Meaning an 8% GAR.

Yes thats as I understand it only they call it GPR. But surely if others are offering better at the time he retires we can research that then at least this is guaranteed?

loopy_lou_6

EdInvestor wrote:

It may be better (if allowed) to contribute more to the policy.

But it is very small and the guarantee means it will not be invested so as to show substantial growth in future. It should be regarded as the 'safe' part of the savings portfolio, but with a better return than cash.

Additional money probably should be invested in something else so as to get high growth.This will be more likely to be an equity ISA than a pension, but you need to check the state pension outlook first before coming to a view.

Hes not allowed to contribute more, and you're exactly right it isnt showing any growth for the last couple of years. I will look into other ways of investing after Ive got a handle on this pension lark. His state pension is maxed out he has always worked since leaving school and when self-employed did everything by the book and always payed his stamp etc

dunstonh

TVAS = transfer value analysis system. It is a comparison between existing scheme and new one to compare benefits. Whilst it is mandatory on occupational pension schemes it is not on personal pensions. Although it is useful to do one to be on the safe side. I do with most of my pension transfers unless it is easy to compare like for like projections/illustrations.

The CIS Guaranteed pension rate is the same thing as a guaranteed annuity rate. If you assume at 65 its 8% then the current open market is closer to 6% so the GAR has some attraction. However, the thought of being invested in the CIS with profits fund for another 26 years is not very appealing.

This is going to be a judgement call which has no right or wrong at this moment in time. Only in 2032 would you know which was the best option.

I would look at 5% growth p.a. on the CIS pension which then purchases the annuity at 8% against a 7% growth p.a. on alternatives which then purchases an annuity at 6% and see which has the higher figure. I think CIS use SMPI basis illustrations to project whereas most others use monetary growth basis so a like for like comparison would almost certainly require TVAS software to be used to get an accurate figure.

loopy_lou_6

dunstonh wrote:

timescale may have a lot to do with it as well. An 8% guarantee is nice but if the fund is low potential for growth over the long term, then despite the guarantee, it may still be worth switching

Yes I see what you,re saying a 6% gpr on a well performing fund is better than an 8% gpr on a poor one? In the docs I received it says What annual bonuses have you declared? and it has 3 columns, sorr I could prob do this better if I knew how to do columns.1st is valuation year, 2nd is basic benefit secured(Guaranteed cash sum), 3rd existing annual bonuses. Respectively-1998-1996, 5%, 6%. 1997, 4.5%,5.4%. 1998, 4%, 4.8%. 1999-2000, 3.25%, 3.9 %. 2001, 2.5%, 3%. 2002, 1%, 1.2%. 2003, 0.5%, 0.6%. 2004-2005, 0%, 0%. So he hasnt had any bonuses for the last 2 years!

loopy_lou_6

dunstonh wrote:

However, the thought of being invested in the CIS with profits fund for another 26 years is not very appealing

I would look at 5% growth p.a. on the CIS pension which then purchases the annuity at 8% against a 7% growth p.a. on alternatives which then purchases an annuity at 6% and see which has the higher figure.

I think this is what I,m thinking. I,m not so bothered thatit hasnt done well up to now, but throwing £50 a month at it for the next 26 years when he could put it somewhere else is another matter. And surely it is'nt growing at all at the moment?

loopy_lou_6

dunstonh wrote:

Plus some guarantees are not practical. A guarantee that is only paid annually in arrears with no guarantee or spouses option may never be convenient and a complete waste of time holding out for.

Dear Dunstonh, you lost me here sorry and thanks for your patience

dunstonh

I dont want to prejudge your case but I have transferred a few CIS pensions with this level of GAR because of the lower poential. However, they have almost excessive warnings all over the recommendation letter in case CIS recovers the returns and annuity rates drop further.

With regards to the returns, you have to remember that there is some capital security with the CIS pension and when the stockmarket crashed, the value wouldnt have gone down as much. So, when the recovery period began, it is no surprise to see the bonus rates not going up as much. Plus the requirements on with profits funds have increased and there arent many companies that can afford to cover those requirements and still give decent bonuses.

Whilst officially, I would allow a 2% difference (comparing 5% against 7%), If you are medium risk in attitude or higher then you could consider comparing a 9% figure against the 5%. It doesnt mean you will get that which is why its called higher risk but the gap between 5 and 9 % is probably a more realistic difference.

Plus some guarantees are not practical. A guarantee that is only paid annually in arrears with no guarantee or spouses option may never be convenient and a complete waste of time holding out for.

Some providers put silly rules on how the annuity payments in retirement will be if you take the guarantee. Scot Eq and ex Royal Sun Alliance (now Phoenix) are two that come to mind. I cannot recall the CIS requirement. To get the guarantee you have to wait 12 months to receive an annual payment. So, in other words, no income payable for the first 12 months and then once a year thereafter. How many retired people can wait 12 months without getting an income?

loopy_lou_6

I think, not being at all financially minded, if I were to find out that this pp is not fantastic but not absolutely dismal and robbing us blind then i would be relieved to leave it as it was and just concentrate on starting up something else as well as this. Just maybe do as Edinvestor said and regard it as 'safe'. Why are these things so difficult? I am educated upto A-level standard and I really struggle. I understand that people like to invest in the stock market and they have some kind of natural aptitude. But something as universally essential as a pension should surely be more transparent and user friendly? Or is it just me?

dunstonh

But something as universally essential as a pension should surely be more transparent and user friendly? Or is it just me?

The CIS pension was set up in more complicated times. Modern plans are easy. However, it is ultimatly an investment and that requires investment risk. If it was made totally easy, it would need a guaranteed return and that just isnt possible. If you used cash (savings accounts) for retirement planning, you would need to pay a heck of a lot more in over the term and just isnt sensible.

EdInvestor

loopy_lou wrote:

His state pension is maxed out he has always worked since leaving school and when self-employed did everything by the book and always payed his stamp etc

So how much is going to get then? Have you go thre forecast yer?

The maximum you can get if fully paid up for your entire working life for the 2 state pensions and retiring now is 12,000 pounds a year index-linked (plus a spouse pension of 3,120. .:) By comparison this CIS pension is piddling.

Of course you can't pay into S2P while you're self employed.