What is a defined contributions pension scheme?

usignuolo

Can anyone describe what is a defined contributions pension scheme?

I have small pension pots in three frozen "zombie" schemes I acquired during my working life: one is from when I was self employed, one when I was an employee in a company and one as the director of my own company.

Do the new rules apply to all of these? I have asked the Pensions Advisory Service and they recently wrote to me to say they still have no understanding of how the new arrangements will work.

CLAPTON

usignuolo wrote: »

Can anyone describe what is a defined contributions pension scheme?

I have small pension pots in three frozen "zombie" schemes I acquired during my working life: one is from when I was self employed, one when I was an employee in a company and one as the director of my own company.

Do the new rules apply to all of these? I have asked the Pensions Advisory Service and they recently wrote to me to say they still have no understanding of how the new arrangements will work.

a defined contribution scheme is one in which you pay money into a pension fund;
it is then invested in various ways:
when your 'retire' to have several options as to what you do
- take an annuity (and a cash lump sum)
- enter a draw down scheme

the rules are changing to allow much greater choice but they are not yet published in detail

xylophone

See http://www.hmrc.gov.uk/pensionschemes/types-of-scheme.htm

Why do you describe your pensions as "frozen, zombie"?

http://www.grove-pension-release.co.uk/frozen-pensions.asp might be worth a look.

What kind of pension was the scheme when you were an employee?

And see https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/332714/pensions_response_online.pdf

dunstonh

Can anyone describe what is a defined contributions pension scheme?

One where you pay defined contributions. A personal pension is a good example. You define the contribution that is being paid.

I have small pension pots in three frozen "zombie" schemes

That doesnt make sense. Frozen has a specific term. It typically applies to very old defined benefit schemes. Whereas the term "zombie" refers to old fashioned investment funds with limited growth potential that would be used on older defined contribution plans.

Do the new rules apply to all of these? I have asked the Pensions Advisory Service and they recently wrote to me to say they still have no understanding of how the new arrangements will work.

Depends on the type of pensions you have and the terms available.

usignuolo

Two of the pensions are in Abbey Life which I understand to be a "zombie" pension provider. Basically they are closed to new members (nor do they offer advice.) I would myself regard this as a frozen state but maybe it is not in pension speak, where it seems to be just a zombie provider.

I paid into them at different times between 1988 and 2005. As I understand it the self employed pension was a personal pension, the directors pension was some sort of executive scheme for small companies (4 of us) and the employees pension was a money purchase scheme for company employees (employed by a company of which I was neither a director not a shareholder, just a common or garden employee).

dunstonh

Two of the pensions are in Abbey Life which I understand to be a "zombie" pension provider.

No. Its a closed life company but it is a unit linked provider and has no zombie fund.

I would myself regard this as a frozen state but maybe it is not in pension speak, where it seems to be just a zombie provider.

It is not frozen in pension speak or investment speak. They still provide returns on whatever market they invest in.

The EPP may have better tax free cash potential than the PPP.

usignuolo

I have read numerous articles referring to Abbey Life as a zombie pension provider. The usual definition seems to be firms not taking on new customers like Abbey Life and Allied Dunbar etc. It seems you have a different definition.

This is what was said about Abbey Life in the Financial Times for example when Lloyds put it up for sale a few years back

"Lloyds to put Abbey Life zombie fund on the block - Abbey Life, which contains about £12bn in closed life policyholder assets, no longer writes new business. It is run as a stand-alone insurance company, which will make it relatively easy to sell, according to analysts.... Demand for closed life funds, popularly referred to as "zombie funds", has soared in recent years.
Buying smaller zombie funds and consolidating them to achieve economies of scale has proved profitable." (FT Feb 2007)

and

What is a zombie fund?

A zombie fund is the name given to a closed with-profits fund. This is a fund which is no longer accepting new business. It could apply to a pension or investment such as a bond or an endowment.

There are many companies whose with-profits funds no longer offer any great prospects. Many of these companies are household names, and include:

Resolution Life
Phoenix
Royal and Sun Alliance
Pearl
NPI
Equitable Life
Alba Life
Eagle Star
Guardian Royal Exchange
Abbey Life
There are many other companies with zombie funds too.

They’re called zombie funds because they’re the “living dead” of funds, they still exist but they’re effectively dead. This is because many of these funds are heavily invested in very low risk and poor performing investments and offer little growth, and no new money is coming in.

and


"FCA inquiry into 'zombie funds': The centrepiece of the FCA inquiry is likely to be millions of pension and investment policies sold in the 1980s and 1990s, in which savers are allegedly trapped by penalty charges of 10%-12% and, in some cases, more than 20% if they want to move their money. Many were sold by salespeople who earned commission of £1,500 to £2,000 a policy, with the first two years of contributions by savers sometimes taken out as charges, followed by annual charges of as much as 4% a year.

"David Smith, of wealth manager Bestinvest, said: "Almost every week we see customers with policies from Allied Dunbar [now part of Zurich] where penalty charges of 10% are not uncommon, while some older NPI policies have the double whammy of a penalty to transfer out plus what's called a 'market value adjuster', which adds up to 20%. They may be trapped in funds where the annual bonuses have often fallen to zero and where they can't effectively get out until retirement age." (Guardian Money)

atush

I think you are getting hung up on what is NOT important and what IS important. And possibly picking a fight with some of the most helpful people about.

What is important is, what kind of pensions are all 3 (ie money purchase/DC or DB/FS). It seems at least 2 out of 3 are DC. These are covered by the 'new' rules.

Then another important thing is, do you have the last few statements? How have the pensions performed ( ie grown)? What funds are they invested in (or are they with profits)? If they aren't performing, look to see if they have imp guarantees such a GAR. If they don't, and aren't performing, transfer them elsewhere. And perhaps put more into pensions.

What isn't important is the words you are using esp Zombie. Frozen isn't what yours are, as this is a specific term as D described.

usignuolo

FT Lexicon

"Zombie Funds: This is a closed with-profits fund that no longer writes new business or policies. This can include pension and investment funds. With-profits funds were for many years the mainstay of the financial services industry, being widely sold as a way of building up pension funds or to pay off a mortgage. "

From someone with pension pots in Abbey Life like me, the fact a fund is closed IS is relevant because these funds have no new money coming in, only money going out from investors who are leaving. This means that a significant proportion of the pot needs to be retained in easy access, and therefore lower producing, assets such as cash in order to fund the withdrawals.

Another consideration is that a normal fund must try very hard to produce good investment returns in order to attract new investors. A zombie fund has no new investors, nor does it want any therefore the fund management performance is pretty irrelevant from a commercial perspective.

That is why they are called zombie funds because they are run pretty much on auto pilot.

I thought this is what Abbey Life is?

atush

Not all abby life pensions are with profits. And with profits did pretty well during the crash. Newspapers confuse terms like Zombi all the time.

You are still hung up on this term, and haven't got out your statements, read them, and got back to us with the answers.

Until you stop quoting useless cr*p and tell us the answers, you aren't going to get much help here.

dunstonh

thought this is what Abbey Life is?

No. Abbey Life was primarily a unit linked fund provider. The vast majority of its contracts used unit linked funds. It did have a with profits fund available on some really old contracts but IIRC, they were only on endowments, whole of life assurance plans and investment annuities.

With what you have posted, you appear to be mixing up product provider with a type of fund that some product providers offer. For example, Phoenix appear in that list but they have some really top rate unit linked funds available under their brand. They also have some closed with profits funds.

Your other snippets posted appear to be from unrelated subject matter. Allied Dunbar, for example, was unit linked only and cannot therefore have zombie funds. The FCA review you quote is not into zombie funds either and was actually misreported because of an incorrect press release and that is currently under investigation that could lead to some form of sanction or even potentially legal action. The FCA have since indicated that the review is just to get an understanding of heritage products and the charges and why they exist. That in turn could lead to some action with some providers but it has indicated that there is no intention to force changes where charges exist for good reason.

From someone with pension pots in Abbey Life like me, the fact a fund is closed IS is relevant because these funds have no new money coming in, only money going out from investors who are leaving. This means that a significant proportion of the pot needs to be retained in easy access, and therefore lower producing, assets such as cash in order to fund the withdrawals.

Abbey Life funds still have people paying into them. However, you are wrong to assume that it will result in lower returns. Indeed, it could result in higher returns in the long run as larger funds often become too difficult to run whereas smaller ones can be more nimble and make quicker changes.

Take Abbey life property fund for example. It is top quartile over 1, 3 and 5 years. Discrete performance over 12 months (to last quarter end) had it ranked 1st in the sector. Abbey life American is top quartile over 3 and 5 years. Its average running is well above mid point in the last 5 years on discrete annual basis. That fund alone has £1,060 million in it. That makes it bigger than most US equity funds open for new business.

You do not have zombie fund and your pension is not frozen. You have what is more commonly known as a heritage plan or legacy plan.