Norwich Union Portfolio Step-down: any good for income for a 63-yr-old?

whoosh

Ed, thanks for your post. Can you clarify a couple of things to help me understand better:

The IB delivers the tax free monthly money, but has high charges which eat into capital

The impression I had from the preceding posts is that the charges I quoted from the IFA recommending the NU product to us were reasonabvle charges and in line with FSA plans on adviser remuneration. Does the fact that the IFA is using an IB wrapper alter this by adding other costs I am unaware of? OR is there some additional cost-related disadvantage to using an IB?

I suggest you say to the IFA that you like the idea of setting aside the 20k for the cash spending but are wary of using an IB again because of your earlier experience.

We're wary of using an IFA period, rather than wary of an IB. My understanding of the problems we had with the IB is that they were due to the fact that the Scottish Mutual w/p bond is a single investment product, which offers no option to switch funds or switch out without incurring an MVA (which we are shortly going to have to swallow). That's the issue. Does the fact that any future product we buy is within an IB matter if the IB in question has no market penalties or exit charges which cause us concern? Pls clarify. Thanks!

dunstonh

The impression I had from the preceding posts is that the charges I quoted from the IFA recommending the NU product to us were reasonabvle charges and in line with FSA plans on adviser remuneration. Does the fact that the IFA is using an IB wrapper alter this by adding other costs I am unaware of? OR is there some additional cost-related disadvantage to using an IB?

I will answer as Ed will just tell you lies.

The charges are low. If you went with unit trusts, which is the main alternative, your annual management charges would be closer to 1.5% p.a. There would also be initial charges of around 1-2%. The IB has no initial charge, an increased allocation of 108% (in this case) and an annual management charge around 1% (assuming some external funds will be used in addition to internal. So, could be 0.9%, could be 1.1% but that will more or less be it depending on the portfolio recommendation).

The disadvantages of the investment bond were covered in my earlier post and relates solely to tax and nothing else.

We're wary of using an IFA period, rather than wary of an IB. My understanding of the problems we had with the IB is that they were due to the fact that the Scottish Mutual w/p bond is a single investment product, which offers no option to switch funds or switch out without incurring an MVA (which we are shortly going to have to swallow). That's the issue. Does the fact that any future product we buy is within an IB matter if the IB in question has no market penalties or exit charges which cause us concern?

Same tax wrapper but totally different product. With profits is a type of fund. The Scottish Mutual plan was a with profits bond. The NU version mentioned is a unit linked bond. The SM plan has one fund (although later versions has unit linked as well. Are you sure there is only one fund?). The NU plan has over 100 funds with free switching.

Ignoring IBs would be like saying you shouldnt buy any car because the Austin Allegro existed and that was bad. The SM was one particular model from an older era that saw these going obsolete years ago.

jamesd

whoosh, the charges are reasonable. Modern investment bonds with a broad range (hundreds) of investment choices are fine and make it easy to immediately get a broad range of investments that deliver a good mixture of income and growth.

EdInvestor, you really should mention that the capital being taken out of an investment bond is being replaced by the growth and earnings being added to it by the investments. It's not a case of living off the capital and depleting it. You might also usefully look at the level of charges involved in this case, since you're incorrectly suggesting that they are high. You should also note that inheritance planning is one of the objectives and your suggested approach makes this worse, while using an investment bond wrapper makes it better.

jem16

dunstonh wrote: »

The charges are low. If you went with unit trusts, which is the main alternative, your annual management charges would be closer to 1.5% p.a. There would also be initial charges of around 1-2%. The IB has no initial charge, an increased allocation of 108% (in this case) and an annual management charge around 1% (assuming some external funds will be used in addition to internal. So, could be 0.9%, could be 1.1% but that will more or less be it depending on the portfolio recommendation).

As someone who has this investment bond, I can confirm this.

I invested £100k with NU in February 06. I paid no initial charge and initial allocation was £107,500. Using predominantly external funds, annual management charge is 1.2%.

Since the bond began, I have had one set of fund switches with no charges. There have been no other charges.

Coops10

More research required Edinvestor!

EdInvestor

whoosh wrote: »

Does the fact that the IFA is using an IB wrapper alter this by adding other costs I am unaware of? OR is there some additional cost-related disadvantage to using an IB?

Yes and yes, I will explain further later.

We're wary of using an IFA period, rather than wary of an IB. My understanding of the problems we had with the IB is that they were due to the fact that the Scottish Mutual w/p bond is a single investment product, which offers no option to switch funds or switch out without incurring an MVA (which we are shortly going to have to swallow).

No, what you have here is two separate products:

1.The investment bond wrapper.All IBs will normally incur penalties if you wish to encash them in the first 5 years

2.The fund(s) within the wrapper which holds your money.In this case it is in a WP fund, which has scope to impose an additional penalty - the MVA.So this partivular IB has two penalties.

It is possible you could move the money out of the WP fund and into other funds while still remaining in the original IB wrapper, but you would still have to pay the MVA so there would be little point .But first have a look at this article which focusses directly on the problem:

http://www.thisismoney.co.uk/investing-and-markets/article.html?in_article_id=399684&in_page_id=3

Have you checked if the ScotMut bond has a penalty free exit date?

Have you been taking the full annual penalty-free withdrawal allowed and reinvesting the money, whether in cash or something else (an investment ISA would be best)?

Does the fact that any future product we buy is within an IB matter if the IB in question has no market penalties or exit charges which cause us concern?

Is there such an animal as an IB with no penalty exit charges?

dunstonh

Is there such an animal as an IB with no penalty exit charges?

Yes. Most of them after 5 years have no hidden exit charges (unlike older with profit versions. There are also a number of modern versions which have none at all at any point. Including some which invest in unit trust funds.

However, if you are going to get say 108% allocation, does it really matter if there is an exit charge of 5% after 3 years?

EdInvestor

dunstonh wrote: »

Yes. Most of them after 5 years have no hidden exit charges

Right, so they all have penalty exit charges before 5 years, thanks for the confirmation.

jem16

EdInvestor wrote: »

Right, so they all have penalty exit charges before 5 years, thanks for the confirmation.

You need to put your glasses on Ed. :rolleyes:

He said most not all.

He also said;

There are also a number of modern versions which have none at all at any point.

dunstonh

To be honest, I dont see the point of posting information when you get Ed ignoring it, twisting it or making it up.