2 or 3 pots better than 1?

PJ1973

I have two old pensions from earlier employment (Virgin and Aviva). I’ve carried on making small (£35) paymentsinto the Virgin one and started last month paying even smaller (£20) into theAviva one – mainly because I didn’t want them to be tiny pots. Before a switch off and forget about them foranother year or two I hope someone might be able to ‘sense check’ what I’mdoing.

Forexample, the Aviva pension is very small and I’m wondering whether it would bemore sensible to transfer it into my current Scottish Widows pension (ratherthan try and get it to a reasonable size). From what I understand there are no protectedrights involved. I have it in my mindthat I’ll get better annuity choices if the fund is large . . . is that a misconception?

I’m 40 years old.



Virgin StakeholderPension

• £22,999 (including £7000 in a “Virgin Contracted Our Pension”)
• Invested in their ‘Growth Fund’ (FTSE All Share tracker).
• Currently pay £35 p month into this.
• Annual fee is 1%.

Aviva Pension

• £3,319
• Invested as follows - £1182 UK Index FTSE All share, £1218 Mix Investment (40-80% shares), £918 Fidelity America)
• From April 2013 started paying £20 per month into this.
• Annual fee is 0.45% + 0.9% for Fidelity American.

Scottish Widows (SalarySacrifice via Firm)

• £38,773
• Invested as follows - Property £4212, Newton Managed £16,190, Fid SE Asia £6159, InvP High Income £12,210.
• Currently investing £584 (mine and employers) as follows:

Investment fund name
Combined premium split (%)

PROPERTY 10.00
SW NEWTON MANAGED 40.00
SW FID SE ASIA 20.00
SW INVP HIGH INCOME 30.00

jamesd

It is a misconception that large pots buy better value annuities, though this depends on how large. Large pots in the £100,000 plus side are more likely to be used for annuity purchases by wealthier people and wealth is also linked to living longer, which means that annuity providers have some incentive to pay a bit less. On the small side at perhaps £10,000 and less the costs per purchase are high enough that this can reduce the amount paid out.

The 1% charge for a FTSE All Share Index tracker at Virgin is high compared to the less than 0.5% that is readily available elsewhere. The Virgin product is good mainly for those who want to pay in very low amounts like £1-20 a month. Since you have a 0.45% fee at Aviva it would be sensible to transfer the money from Virgin to Aviva to lower the cost of the tracker part.

The Scottish Widows plan may be cheaper still. Don't know because you haven't said.

Once we know the SW costs we could say whether there seem to be better deals on cost with a good selection of investment options available.

There's a fair bit that can be written about your investment choices, perhaps most notably high UK weighting and lack of a global tracker fund, but I'll leave others to cover this area.

Do remember that you don't have to buy an annuity. Income drawdown, taking an income from money left in investments, is entirely possible and can make a lot of sense for those who retire at relatively young ages when annuities offer quite poor value compared to later, say age 75-80 and up. Unlike buying an annuity, drawdown isn't an irrevocable choice and it's entirely possible to buy a bit of annuity every year or three as you get older and the age-related part of rates starts to shift in your favour.

bigadaj

I don't understand why you would contribute into other schemes when you have the salary sacrifice scheme available, as the national insurance contributions are likely to be significant.

I pay into a scottish widows GPP by salary sacrifice and use a range of funds, these tend to be around 1% with trackers around 0.6-0.75% and whilst your scheme could differ it sounds as though the aViva scheme might be cheaper. Subject to confirmation. If so I'd transfer the pot from the virgin into aViva and utilise their cheap tracker funds, and put all contributions from now on into the scottish widows to maximise the NI contributions.

dunstonh

Virgin stakeholder is poor quality and expensive.
Aviva seems pointless as you have salary sacrifice available (unless you are maxed out on that scheme). Same with Virgin.

I have it in my mindthat I’ll get better annuity choices if the fund is large

Only difference is that you would use the IVPPP method when you retire instead of the OMO method. However, the annuity rate would be the same.

PJ1973

Thanks for the tips guys.

The Scottish Widows charges our a bit of a mystery to me, so I'll need to do more digging.

Will definately look at moving the Virgin Pension and focuses on the Salary Sacrifice pension. Also agree therre is too mucj UK exposure, so will look at this also.

Phil