Dog of an old pension - shoot it or let it lie?

gadgetmind

Back in the very early 80s, I started a "Hill Samuel Life Personal Pension" and lobbed a couple of hundred quid a month into it for a couple of years.

I made it paid up in August 1993 due to job changes and I have a statement here from August 1994 that shows -

Managed Units A, 302.825 @ 358.50 = £1085.63
Managed Units B, 1851.537 @ 152.40 = £2821.74
Total = £3907.37, xfer value = £1028.46

My most recent statement is Sept 2010, which is now Abbey Life, and it shows -
Managed Units A, 153.015
Managed Units B 1851.537
Total = £3914.27, xfer = £2660

So, over 17 years, the compound interest has added about £7 to this pension. Does anyone have any theories about where the rest went? Might some pensions adviser perhaps have it?

Anyway, no use crying over spilt milk, my fault for not addressing it sooner. Do I now allow this money to moulder down to nothing, or bite the bullet and move the £2660 to one of my other pensions where it might actually perform?

I'm currently 48 and would *love* to retire in 7 years. This pension is but a small part of my overall pension savings, but every little helps.

dunstonh

Back in the very early 80s, I started a "Hill Samuel Life Personal Pension"

Personal pensions didnt exist in the very early 80s. They started in 1988.

the compound interest has added about £7 to this pension.

It doesnt get interest.

Does anyone have any theories about where the rest went?

Pensions of that era had heavy set up costs. You only paid for a maximum of 5 years, possibly less. So, the years that followed would have had deductions for those set up costs.

Might some pensions adviser perhaps have it?

No. Hill Samuel havent had any for a very long time.

Do I now allow this money to moulder down to nothing, or bite the bullet and move the £2660 to one of my other pensions where it might actually perform?

Have you done a cost/benefits analysis to see which is best?

gadgetmind

dunstonh wrote: »

Personal pensions didnt exist in the very early 80s. They started in 1988.

Sorry, my fat fingers. Early 90s.

Pensions of that era had heavy set up costs. You only paid for a maximum of 5 years, possibly less. So, the years that followed would have had deductions for those set up costs.

Zero gain in value for 17 years? What makes it more annoying is that the chap who sold it to me was in the office for max 45 mins. How things have changed. Or have they?

Have you done a cost/benefits analysis to see which is best?

I can certainly model likely growth of the £2.6k if moved at 5%, 7% and 9% in my Friends Provident personal pension, which has an AMC of 0.75% and a decent selection of funds, but I need some idea of what might happen if I leave it alone.

Is it safe to assume that it will have a value for evermore of pretty much exactly £4000? If I bang a letter off to Abbey Life, will they be forced to be honest regards past/future costs etc.?

dunstonh

Sorry, my fat fingers. Early 90s.

That makes the early set up charges (probably done through capital/Acc units) more likely the reason for the lack of growth. The B units is where the damage is. They are to cover costs.

Zero gain in value for 17 years? What makes it more annoying is that the chap who sold it to me was in the office for max 45 mins. How things have changed. Or have they?

Things have changed beyond recognition. However, part of your problem is that you never paid much into it or for long enough. So, the early year charges which were always higher back then are covered in the Class B units.

The class A has returned 49.97% over 10 years but the class B has lost 6.23%.

I can certainly model likely growth of the £2.6k if moved at 5%, 7% and 9% in my Friends Provident personal pension, which has an AMC of 0.75% and a decent selection of funds, but I need some idea of what might happen if I leave it alone.

Have you compared the FP projections from the transfer value against the Abbey Life using same growth rates?

Is it safe to assume that it will have a value for evermore of pretty much exactly £4000?

No. The analysis of the charges would need to be made first. Effectively though the class B will be paying that transfer penalty. So you will pay it whether you move or transfer. So, a projection analysis using the same growth rates is the easiest way to look at it.

If I bang a letter off to Abbey Life, will they be forced to be honest regards past/future costs etc.?

They will supply a summary of charging structure.

gadgetmind

dunstonh wrote: »

That makes the early set up charges (probably done through capital/Acc units) more likely the reason for the lack of growth. The B units is where the damage is. They are to cover costs.

THREE THOUSAND POUNDS of costs, plus taking all growth over 17 years, just to take £4k off me. Sheesh! OK, I jumped ship fairly eaely, but in retrospect, it was almost certainly the right thing.

Have you compared the FP projections from the transfer value against the Abbey Life using same growth rates?

I can easily do the FP side of things, but the AL side is more tricky. Growth to date has been zero, ziltch, nothing, nada. Using this historical rate, a switch is a no-brainer, even given they will confiscate a further £1300 quid.

So, a projection analysis using the same growth rates is the easiest way to look at it.

But how is that realistic given AL's funds proven and documented complete lack of growth to date?

They will supply a summary of charging structure.

I have a list of about 30 questions for them composed in my head. Their inability or refusal to answer these entirely reasonable questions about the likely future of the monies they hold for me will probably help my decision.

BTW, at about the same time as I started this dog of a pension, I also made some one-off contributions into some PEPs. I'm jolly glad I did as these have done *very* well.

I'm currently putting 60% of my income into a pension, so I am a believer in making use of the tax breaks, but you have to be very careful with these things as the high entry/ongoing fees can rob you rotten IME.

dunstonh

THREE THOUSAND POUNDS of costs, plus taking all growth over 17 years, just to take £4k off me. Sheesh! OK, I jumped ship fairly eaely, but in retrospect, it was almost certainly the right thing.

It may have been. However, the charges would have been set at the outset and the same whether you paid for 5 years or 20 years. The reason they appear high is you didnt pay long so pro-rata they appear large.

but the AL side is more tricky.

Its not. You ask them for a projection to age x along with current and transfer value. You then use the transfer value to get a projection from FP to the same age and same rate of return. Whichever is higher is the cheapest.

But how is that realistic given AL's funds proven and documented complete lack of growth to date?

Perfectly realistic. The projections include all charges. The actual performance of the AL managed fund is spot on sector average and only fractionally being FP's same fund. So, performance wise, there is nothing in it. It is down to charges and the projections will show that.

I have a list of about 30 questions for them composed in my head. Their inability or refusal to answer these entirely reasonable questions about the likely future of the monies they hold for me will probably help my decision.

Remember that they are not allowed to give advice, opinion or offer any real comment beyond the facts. So, questions about future returns will not be answered (FP would be the same).

but you have to be very careful with these things as the high entry/ongoing fees can rob you rotten IME.

Historically yes but nowadays pensions can be dirt cheap.

gadgetmind

dunstonh wrote: »

The class A has returned 49.97% over 10 years but the class B has lost 6.23%.

However, I seem to have far fewer A units that I used to have. I'll check through more of the statements and see when the rot set it.

BTW, I stopped paying into this pension as I was advised this was the best thing to do.

When I started this pension (along with others in our three man company) we were in our late 20s, and pretty fresh from uni, so didn't know much of pensions other than our parents said they were a good thing.

So, when the slick chap from Hill Samuel came along, I agreed to put 10% of my £24k salary into the pension. As I'd bought my first house only a few years earlier, and our income depended on unreliable advances and royalties, paying this money was HARD WORK but I knew that pensions were a good thing.

By 1993, a new company we'd started had outgrown the original, and TBH times were good. It was then than another chap from HS came to see us about pensions and took us out for another lunch. We swapped business cards and he said he'd be in touch.

He was, and only two weeks later, but now he worked for J Rothschilds (how fancy is that!) and shortly afterwards our HS pensions were made paid up and we had shiny new St James's Place Executive Retirement Plans, and lots of other fancy stuff. Lots and lots of other fancy stuff.

All of this ran and proliferated for about a decade before I accepted that I didn't understand all the various schemes (dozens of names and plan numbers) and so contacted an IFA in about 2003.

Shortly afterwards, my pensions were in a SIPP with Selestia/Skandia/SIPP-Centre and my wife's PEPs had also moved. In total, we moved about £200k of investments. We were told that the roughly 5% hit due to bid offer spread was unavoidable and worthwhile. OK, maybe, but I decided to leave my own PEPs where they were so we could compare performance.

Was the SIPP a bad move? Probably not, as SJP were confusing and lacklustre, but I now realise that a move to (say) Hargreaves Lansdown for both pensions and PEPs/ISAs would have avoided the 5% hit.

I've learned a lot since then, including that free lunches can be VERY expensive long term, but also a bit about pensions and investments. I know to avoid high fees and making hasty changes, no matter how convincing the pitch.

Everything now seems to be running well, and it's just this old HS pension that I want to either bring into the fold or put out to pasture.

gadgetmind

OK, I have found some figures.

In Sept 2010, Abbey Life said my pension was worth a stunning £3914.27. They also project that with no further payments into it, and a 5% pa growth, it will be worth £4070 when I am 58.

I plugged this into the Hargreaves Lansdown pensions calculator, but even with annual fees at the max of 3%, they show £4723 in money terms in 10 years time.

So, I ran the numbers again, using the £2660 transfer value and fees of a more reasonable 0.7% and I'd have an estimated £4039. This suggests that (assuming both do grow at 5%) there isn't much difference between moving it at xfer value to a low-fee pension versus leaving it where it is with mega-high fees.

I'm tempted to move it, partly because it gets it all in one pot, partly because FP gives me a wide choice of fund that I reckon stand more chance of achieving at least 5%, and partly because I don't trust Abbey Life not to make life difficult again at age 55/58.

Does the above make sense?

BTW, thanks for all the advice, and for being very level and factual rather than just laughing at me!

dunstonh

So, I ran the numbers again, using the £2660 transfer value and fees of a more reasonable 0.7% and I'd have an estimated £4039. This suggests that (assuming both do grow at 5%) there isn't much difference between moving it at xfer value to a low-fee pension versus leaving it where it is with mega-high fees.

You can only look at the transfer value as the current value is meainingless in this case. If there is nothing in it then moving it to modern alternatives is a viable option. Just remember though that the Abbey life fund tracks the sector average nearly exactly. So, the net gain in the end if you use similar investments is likely to be very similar.

gadgetmind

dunstonh wrote: »

Just remember though that the Abbey life fund tracks the sector average nearly exactly.

One does, but the other one (in which I seem to have a few bob) certainly doesn't. I also seem to have zero control over where the money is invested.

Another big question is what might happen in 7 years if I retire at 55. Might AL relinquish significantly less than 100% of my money at this stage? If I couldn't pull it all away to a more modern drawdown system at the point, then this would make my decision rather easy.

What is the significance of specifying a retirement age? My schemes have a mixture of 55, 58, 60 and 65 as I really didn't know what to say. I can see that this would affect when they might automatically shift your asset/risk profile, but does it have other consequences?

gadgetmind

OK, the paperwork has been signed to transfer this over to my FP "Next Generation" plan. There is a good chance that this money will grow better there and I know that life will be easier at retirement with my money being with companies who are still in the pensions business.

Many thanks to dunstonh for his valuable insights on what I needed to be looking at to make my decision.