Personal Pension Transfer Values

basso_2

Can anyone tell me whether what I describe below is common and whether there is any possibility of making the pension provider explain its position.
In my younger days I was an employee (as opposed to being self employed) and started a private pension fund with General Portfolio (who later became GAN and then Windsor Life). I also contracted out of SERPS. Over the years I had two or three plans into which I payed contributions, until eventually in 1993, I became self employed.
In 2001 or thereabouts I created a SIPP wrapper, originally to own a property that my business rents (very tax efficient etc etc). I now come to do some housekeeping on the pension front, and look to transfer a couple of my Windsor Life Policies into the SIPP. One policy has a statement value of £6000 but I am told by Windsor Life that its transfer value is just over £3000. I enquired via the Windsor Life web site, as to how they were able to justify reducing my fund value by approx 50% as a consequence of transferring it to another provider..... the answer they provided was merely an up to date valuation of the fund value and the transfer value, no explanation.
Can anyone explain whether this is a reasonable amount for WL to reduce my fund by, or are they merely trying to disincentivise me from moving? Why should I be penalised for deciding to move my pension fund?

dunstonh

Can anyone explain whether this is a reasonable amount for WL to reduce my fund by, or are they merely trying to disincentivise me from moving? Why should I be penalised for deciding to move my pension fund?

It is probably a mixture of a with profits policy with a market value reduction and a transfer penalty (although they could also be stripping out protected rights which cannot be transferred into full SIPPs at this time).

Is it fair, probably not but it is legal. Many pre 2001 plans have exit penalties and whilst many of the providers which still transact for new business today have equalised old charges with new, closed insurance companies have no incentive to do so. So, on that point, it is a disincentive for you to move.

EdInvestor

On the assumption this is a unit linked policy rather than WP, the extraction of exorbitant penalties on the way out is common practice among certain providers among them Allied Crow... sorry Dunbar, and Abbey Life, not to mention GAN.

Basically what they are doing is taking the charges they would have received if you kept the policy to maturity.They are entitled to do this under the t&cs.It is extortionate and such policies are not sold any more.

The best thing to do is to bite the bullet, take the money and then invest it optimally so as to make up the losses. You will only be able to move the non-PR money to your SIPP now, PR money may be allowed from next April.

BTW, if you have a bespoke SIPP designed for commercial property, you may fiund it imposes charges which are not optimal for small conventional pensions.It may be better to open a separate low cost online Sipp to deal with this money.

Suggest you compare charges with these two:

https://www.sippdeal.co.uk
https://www.hargreaveslansdown.co.uk

dunstonh

If it is unit linked, then the best thing is probably not to leave Windsor but to pick more suitable funds. There is little point halving your money to leave a provider if there is a range of unit linked funds available.

EdInvestor

I beg to differ. Why put future profits at risk of confiscation as well?

dunstonh

If there is no penalty on selected retirement date and there are alternative funds available to suit your needs, then why pay a penalty when there is no need to?

your option would have to obtain a 100% return just to break even. So, lets say their funds only achieve sector average per annum and your alternative is 2% a year better. How many years is it going to take for a profit to be seen?

strawberrylane

...about 38 years.

EdInvestor

2% a year better

Here we go again....:rolleyes:

basso_2

Well thanks for all of the observations and the advice- although like a lot of things there are many shades of grey.
The policy is a unit linked policy not a with profits policy.
I assume I have the option of stopping contributions, but if I do so and don't move the fund, then any charges will merely eat into the value. Maybe there is an optimum level of contribution to make that would just keep the thing ticking over - ie reduce the contribution to a minimum but maintain the value.
I quite like the idea of seeing if there are alternative funds within WL to have a look at. I will investigate.
Many thanks once again.

dunstonh

Making the plan paid up (no more contributions) and making sure the funds are suitable for your requirements makes sense. The charges ongoing may not be comparable with modern plans but that is still better than losing 50% on transfer.

There shouldnt be a need to throw good money into an old "obsolete" plan. Just make sure there are no guarantees on the product before you cease contributions.