Anria

wary

My wife is almost 45 and has no pension other than £2500 in a legacy Abbey National Retirement Investment Account. This is a pension policy wrt contribution & withdrawal rules. However, while the money is there, it is more like a saving account in that it is not invested. This means no fees/AMC but simply accrues credit interest.

If we assume that having some kind of pension is the sensible option (she should be able to withdraw it all tax-free using her annual allowance), and also that she contributes £5K for each of the next 10 years say, would she likely be better paying into this (further contributions are allowed) or setting up a SIPP?

The ANRIA has the advantage of no fees, no risk of its value decreasing and no set-up costs (an IFA has quoted £500 for setting up a H-L SIPP). However, the current interest rate is tiered from a mere 0.1% rising to 0.4% (any funds above £20K). I’d expect it to increase as base rate increases though (for example, top tier was 15.25% back in 1990 … although it won’t reach that again!).

I’d guess a SIPP would be the recommendation, and whilst I appreciate it would need a crystal ball to be sure, I’d be interested to hear people’s thoughts. I’m partly mindful that stock markets are generally high at present so there is plenty of scope for it to fall.

jamesd

When did she take it out? If it was before 1 July 1988 it is probably a retirement annuity contract. If after, it's probably a personal pension. I'm not very familiar with RACs but they can be transferred to personal pensions.

One key question is whether there is a guaranteed annuity rate attached to the policy. If there is and if it is both sufficiently generous and available early enough it might be worth keeping. Might, not will, given her age and lack of investment use. Does it have any investment options? It might have them, whichever type it is, and not be purely cash.

If there is no cash option and no substantial penalties for transferring she should transfer to a personal pension that will allow a range of investments. That personal pension could be a Self-Invested personal pension or a standard Personal pension. Which to go for would depend on investments to be used and charges, since personal pension do not normally allow owning shares but SIPPs usually do.

Hargreaves Lansdown does not charge any fee for setting up their SIPP. Earlier this year Hargreaves Lansdown was making about 0.8% interest rate margin on cash held in its Vantage service, after the cost of the interest it paid on to its customers. A few years ago that margin was more like over 4%, I haven't looked up the exact number. Hargreaves Lansdown isn't a particularly bad choice for the amount of money here unless she wants to use cash but that would change as the amount rose above say £50,000. If she does want to use cash I suggest that she leaves it where it is.

It is unlikely that the ANRIA will not lose money. Are you sure that the amount in it is inflation-linked so it doesn't lose money? By contrast, the UK stock market has averaged around 5% plus inflation growth over the last hundred plus years. Even if the ANRIA has inflation protection that 5% compounded will make a huge difference. Many markets are quite high at the moment, but not all. She could start by picking a fund that invests in the EU or in UK commercial property, both areas that are not near to highs, and adjust that over time.

There are SIPPs that pay more interest on cash than HL but the ones that offer the best rates are probably too costly for the amount of money involved here.

So far as £5,000 a year goes she really should start to get more experienced and comfortable with investing, for she's greatly harming her financial future by sticking with cash.

To pay in £5,000 gross a year she will need to be earning that much form PAYE income. Otherwise she will be limited to £3,600 gross a year. She could use a stocks and shares ISA for the difference.

kidmugsy

wary wrote: »

an IFA has quoted £500 for setting up a H-L SIPP.

Good Lord, you can set it up yourself, free.

dunstonh

The ANRIA is a hybrid scheme. It also gained automatic transitional relief in April 2006 to have greater tax free cash. The ones I have seen have all been deposit based with returns based on interest rates with 100% tax free lump sum entitlement.

would she likely be better paying into this (further contributions are allowed) or setting up a SIPP?

That pension is closed and cannot be incremented. A SIPP is an advanced investor option and we dont know if your wife is an advanced investor.

an IFA has quoted £500 for setting up a H-L SIPP

Which seems daft seeing as IFAs have access to cheaper SIPPs and pensions than HL. Paying an IFA to set up a DIY option that is higher in cost because its DIY is not logical.

I’d guess a SIPP would be the recommendation

Nothing you have said suggests SIPP would be the recommendation.

xylophone

Is it possible to transfer it into a personal pension?

http://www.cavendishonline.co.uk/pensions/transfers-and-repensioning/
might be worth a look?

gadgetmind

kidmugsy wrote: »

Good Lord, you can set it up yourself, free.

Yes, but you should really learn a little about asset allocation first.

kidmugsy

dunstonh wrote: »

The ones I have seen have all been deposit based with returns based on interest rates with 100% tax free lump sum entitlement.cal.

One way to look at it, OP, is that this pension can be the cautious part of your wife's pension portfolio, and she could contribute to a personal pension of some sort for her more equity-inclined investments. As you say "she should be able to withdraw it all tax-free using her annual allowance" means that a pension should be a wise investment for her.

wary

Thanks everyone for the info.

I wrote to Santander recently to obtain detail of the policy, including options for withdrawing the money come 55. Unless the response was from someone who didn’t know the full facts or who withheld key facts, this is what I gleaned:
• It is a personal pension, commencement date 17/08/1988
• The funds cannot be invested; they merely attract interest as per any normal savings account
• Further contributions can still be made
• In response to my queries re taking pension benefits come 55, they simply enclosed a Royal London booklet which seemed to largely describe normal pension rules. There was no reference to guaranteed annuity rates or 100% tax free lump sum entitlement
• No information on transfers was provided although they did specify a “transfer value”

My wife is not an advanced investor; in fact she couldn't know less about them. She is financially illiterate and my knowledge is not much better. The reason why we’d go down the IFA route is primarily for the expert advice, and also to save us the hassle of the set-up for something we know very little about.

Putting aside the ANRIA question for the moment, if she had a brand new investment-based policy set up, what sort of pension should she go for & with which company? Is this something we can achieve ourselves or would it be a mistake to not use an IFA? What would be a reasonable fee for an IFA to advise and to do all of the set-up? As the pot would be small, we’d probably not pay for ongoing servicing but perhaps pay an IFA to review her policy when she is 50 say – does that sound sensible?

dunstonh

• Further contributions can still be made

Clarification on this. did they say that contributions can continue for those that already make them or whether new contributions could be made?

In response to my queries re taking pension benefits come 55, they simply enclosed a Royal London booklet which seemed to largely describe normal pension rules. There was no reference to guaranteed annuity rates or 100% tax free lump sum entitlement

Did you ask the question about transitional relief? A lot of the information needed when examining pension transfers requires specific questions to be asked. All the info is rarely supplied automatically.

My wife is not an advanced investor; in fact she couldn't know less about them. She is financially illiterate and my knowledge is not much better. The reason why we’d go down the IFA route is primarily for the expert advice, and also to save us the hassle of the set-up for something we know very little about.

Using an adviser is fine just as going DIY when you know what you are doing is. However, the products and providers that IFAs have access to are cheaper than HL, which is a DIY option. You effectively have the worst of both worlds if you limit an IFA to picking a DIY provider.

Putting aside the ANRIA question for the moment, if she had a brand new investment-based policy set up, what sort of pension should she go for & with which company?

One that is suitable for her investment risk profile, capacity for loss, knowledge and understanding, amounts being invested etc.

£500 you have been quoted is fine but you need to take the handcuffs off the adviser and let them pick the product type, provider and funds. Not you select a provider that is more expensive.

wary

Thanks DunstonH for the latest useful info.

Re the ANRIA ...

dunstonh wrote: »

Clarification on this. did they say that contributions can continue for those that already make them or whether new contributions could be made?

The letter says that if she wishes to start contributions again, they will send he a SO form and they obtain 20% from the government etc ...

dunstonh wrote: »

Did you ask the question about transitional relief? A lot of the information needed when examining pension transfers requires specific questions to be asked. All the info is rarely supplied automatically.

In light of your comments, I think it would be worth me going back to them. Please can elaborate on what "transitional relief" is, so I can determine the best way to ask the question, given that the first response I received from Santander appeared not to know about it? I note your earlier comments about April 2006 and resulting in greater tax free cash, even up to 100%. However, what brought this about and why would the government allow a pension policy to be taken tax free in that way?

wary

Just noticed that the list of threads is not reflecting my update yesterday with the above post, and instead is showing 9th Sept 9:16am!!!