AXA/Sunlife With Profits Bond

ambert

I've got an ASL With Profits Bond with a current value of £16.5k. Trouble is it's only making 2.5%. The MVA is 3% making a surrender value of just over £16k.
My options are:
I can switch to different ASL funds, but this still incurs 3% MVA.
I can withdraw 7.5% annually without penalty.
I can take the money and run and try to recover the £500 hit.
Leave it alone until such a time when the MVA reduces 0% or thereabouts.

I've been advised by an IFA to cash the bond in, then he'll try to find a investment that will perhaps give aspecial offer of 100%+ unit allocation.

Is this good advice, or do you MSE's have any other ideas?

EdInvestor

Is there an anniversary date (typically after 5 or 10 years) when you can cash it in without penalty? If there isn't I would suggest you cash it in BUT, wait for a little while to see if the MVA gets removed in the current bonus round - other insurers are doing this. Should become clear over the next few weeks.

It's a terribly bad idea to move the money from one bond to another one though.These products have the highest charges in the market and they are particularly extortionate for small sums.

Check it out here:

https://www.fsa.gov.uk/tables

In addition, within the bond you are paying tax on income and capital gains which you would not pay (assuming you are a basic rate taxpayer) outside.

I would suggest you move the money to a discount broker such as https://www.h-l.co.uk and invest it in a selection of funds with charges rebated.

You could try telling your IFA you're going to do this and asking if he can match H-L's terms.

That would involve him rebating the fund initial charges ( typically 5%) and also rebating 0.25% off the annual fee, typically 1.5%.

Watch him spit with rage.

dunstonh

It's a terribly bad idea to move the money from one bond to another one though.These products have the highest charges in the market and they are particularly extortionate for small sums.

It can be a good idea with the right circumstances and these products can have the lowest chargess in the market. However, for the amount of money you have here, it is not at all likely that the bond would be the best option.

The ISA should be maximised first and that would then leave you looking at unit trusts. If a bond was sold, and no ISA was it would be an easy upheld complaint for a complaints company to look at.

You could try telling your IFA you're going to do this and asking if he can match H-L's terms.

That would involve him rebating the fund initial charges ( typically 5%) and also rebating 0.25% off the annual fee, typically 1.5%.

Watch him spit with rage.

Advice cases arent going to be as cheap as execution only cases with HL. You get it cheaper with HL because HL have no liability (i.e. you cant go to the FOS to complain) and the admin is less as there is no recommendations to be made.

That said, the advice looks quite poor in this case.

EdInvestor

Do you really think it's worth paying to take this guy's advice?

Ambert would probably be able to educate himself to a similar or better level by just reading some of the longer threads on this forum about fund investing.

dunstonh

If you are a basic rate taxpayer, the minute someone recommends an investment bond for less than 50k, you should be on guard.

Its interesting that the thread is about the tax wrapper and not the most important thing. That is where it will be invested.

Any adviser or individual focusing on the tax wrapper first is going about it the wrong way.

dunstonh

Paul, some of those points are accurate historically. However, less so now.

Property funds were available in ISAs from Dec 05 where they werent in the past and there has been an increase in unit trust bricks and mortar funds.

Also, a number of providers (including Fidelity FNW, Selestia and Skandia) allow a fixed regular withdrawal on the ISA and unit trust.

Obviously, IHT and trusts are still a big gain for investment bond over the others. Plus you have the age allowance reduction issue where investment bonds are better and also Inv bonds are not including for pension credits means testing.

Larger investments into investment bonds can be cheaper than the same unit trusts so the expensive comments Ed makes are not accurate and now that you can invest in unit trusts (inc and acc units) inside of an onshore investment bond with no charges on the wrapper, then an investment bond can actually be no different in cost to unit trusts.

EdInvestor

The other attractive feature is the ability to place bonds in trust to avoid IHT liability.

If you look at the amounts extracted from your returns within the bond over the years in life co charges and life co taxes (which you wouldn't pay if you invested outside the bond), you will rapidly see that you might well be better off to invest direct and then pay the IHT.

Anyone who thinks the Government doesn't know about the investment bond "dodge" and hasn't sorted out arrangements so that its revenue is unaffected, is severely underestimating the intelligence of G.Brown.

dunstonh

If you look at the amounts extracted from your returns within the bond over the years in life co charges and life co taxes (which you wouldn't pay if you invested outside the bond), you will rapidly see that you might well be better off to invest direct and then pay the IHT.

Which is complete rubbish. As has been said countless number of times now, you can invest in investment bonds cheaper than unit trust funds. Why do you continue to disregard this and post misinformation?

jem16

EdInvestor wrote:

If you look at the amounts extracted from your returns within the bond over the years in life co charges and life co taxes (which you wouldn't pay if you invested outside the bond), you will rapidly see that you might well be better off to invest direct and then pay the IHT.

You mean where you "proved" your theory in this thread? :rolleyes:

http://forums.moneysavingexpert.com/showthread.html?t=288247

For anyone interested in how to save money Ed style

http://forums.moneysavingexpert.com/showpost.html?p=3314816&postcount=94

By the way I'm not advocating an investment bond here for reasons that Dunstonh has already pointed out.

dunstonh

I did not know that!

Selestia and Skandia have done it for about 3 years. Fidelity only did from yesterday. Cofunds dont yet but its only a matter of time.

I also think that when Councils assess people on their ability to pay for any care (including Residential care) that the value of any monies in Investment Bonds is excluded. Please correct me if I am wrong!

You are correct.

I am not sure of the relative charges of Unit Trust and Investment Bonds. I invested into Investment Bonds because they offered up to 109% allocation and with my mum's life expectancy of around two years at the time they were very favourable terms - especially coupled with the 101% 'life insurance'.

Good reason. I have arranged investment bonds in the past where there is a negative reduction in yield over 5 years. You wont find a single unit trust that can do that.

With regards to charges, the use of unit trusts inside of the life wrapper is relatively new for onshore bonds and only a couple of providers do it at present. However, this does make the charges exactly the same as unit trusts so when you see comments about them being more expensive, it just isnt the case. As it happens, there are about a dozen cheaper providers than the unit trust versions.

Life companies do have a good track record on low risk investments and inside of the bond, the life funds are often charged at 1% p.a. The unit trust versions are usually charged around 1.25%-1.50%. If you have a good allocation rate that isnt clawed back in the early years (usually when a special offer is on) and you are a lower risk investor, the investment bond can be attractive.

dunstonh

current investment bonds are a mixture of the old and the new Some are clean contracts with no initial allocation but no exit penalties. Others have higher allocations but with 5 year tie in

A trend with a couple of the better ones is to lower the charge after the 5th and/or 10th anniversary. This is an attempt to stop churning between bonds.