Aviva Newton Higher Income Fund closing - what to do?

ClaretHead

I have just received a letter from Aviva which says:

"We are closing one of our pension funds

We've recently reviewed our funds and as a result, on 4 June 2013 we are closing the following fund:

Aviva Newton Higher Income Series 2"

The letter says I have 2 options:

"Option 1

You can move your investments from the closing fund into a fund of your choice...We won't charge you for this switch

Option 2
If you don't take any action by 4 June 2013 we'll move your investments into the following fund:

Aviva UK Equity Income Series 6

This has very similar objectives, the same risk rating and either the same or lower charges"


I've lost touch with the financial adviser who set up this pension, and I don't pay into it at present (paying into current employer's scheme).

I plan to retire at 65 in 10 years time. There's 14k in the Newton Fund, out of 52k total in the Plan.

I've been thinking about merging the Aviva plan into my current plan (Group Personal Pension with Standard Life - my employer uses Hargreaves Lansdown as the administrator).

Aviva seem to only allow fund transfers by sending them a form (even though I can view the policy online), while the
Standard Life policy allows me to select and swop online.

I'm not sure whether to let Aviva take Option 2, pull my finger out and transfer to Standard Life or pick a fund from the Pension Fund Guide which Aviva have sent out? Any thoughts?

mania112

well if you were happy with the Newton fund, then you should be happy with the one they suggest as it has the same objectives, risk rating and charges.

jamesd

Newton Higher Income used to be an enhanced income fund that would trade capital for income. An ordinary equity income fund is not comparable to that in objectives. With a new manager, who used to run a UK growth fund, the Newton fund is no longer so strongly focused on income and is now closer to normal equity income.

Same objective is not sufficient. You want good performance or at least lack of bad performance. First choice for normal UK equity income funds is Invesco perpetual Income or Higher Income and you should switch to one of those if available.

Compare the charges of the plans for the investments you want to use. Then compare with the better of the DIY options that may well be cheaper buy the end of this year, if not already, as regular-mandated pricing changes sweep through tat industry. Best to wait for the dust to settle before deciding on transferring the whole pot somewhere.

You may be 55 already since you have ten years to go. If so you also have the option of using income drawdown and recycling the income into more pension contributions. For the amount involved in this pension pot you could also take the 25% tax free lump sum and recycle that into more pension contributions and be within the limit for that. Aviva might not let you do that, if so the solution would be to transfer to a provider who does. You might also be able to transfer the current work pot somewhere else to add it to the pot for this. If so, and if the lump sum amount is more than £18,000, you'll need to check the rules on recycling lump sums before doing that part. Nothing limits recycling of income, though, other than the normal contribution annual limit.

If your current work scheme is by salary sacrifice it's particularly advantageous to recycle since your gain isn't just the income tax but also the NI, yet you only pay income tax on the pension income, so you get a nice extra tax gain as well as the income tax saving on the new 25% tax free lump sum that you're accumulating.

If you might want access to the capital you could use S&S ISA investing for at least the lump sum part if you prefer.

Death benefits change once you start to take income. Instead of 100% of the pot being able to be paid to anyone tax free if you die, 100% can be paid tax free to a spouse into their pension pot but for anything else there is a 55% tax charge taken. If this matters, life insurance can be used to cover the difference, set up to pay out to whoever other than a spouse would lose out by the tax charge.