L&G 'With Profits' Investment Bond "Zombie"

ArmyDilllo

Hi,

I have £85k in a 'with profits' Investment Bond ["Distribution (Growth) Fund (A)"] with Legal & General, who announced earlier this year, its' closure to new investments.
Although I have been seeing reasonable low-risk growth from it, I am concerned about its' new zombie status and how that could affect it in future.

How can I get at this capital to transfer it to a safer haven in the most efficient way?
My surrender value is £2k less than the above value.
That would leave £83k to remove and I am more concerned about the Tax-Man's interest in it.
Even taking chunks at a time, I think I'm still looking at losing another 20% every year on it.

Not sure of the relevance but, I became 55 in February and am planning to retire at sixty.
I have other investments which I believe will allow me to do that comfortably.
I was planning to use this fund as one of my 'back-up' plans.
Now I think I may need to take action to rescue it.

Appreciate any and all thoughts.
Many thanks, in advance.

dunstonh

Although I have been seeing reasonable low-risk growth from it, I am concerned about its' new zombie status and how that could affect it in future.

It would make little difference.

My surrender value is £2k less than the above value.

Is that a surrender penalty or a market value reduction?
Is that with or without including terminal bonus accrued to date?
What other funds are there in the product?

Not sure of the relevance but, I became 55 in February and am planning to retire at sixty.

What is the tax wrapper it is in? ISA, bond or pension?

Now I think I may need to take action to rescue it.

Review maybe but it may not need a rescue. It may be a closed funds but some of the closed funds are doing very well and there is little point paying to exit something that doesnt need exiting. So, what justification do you have for wanting out?

ArmyDilllo

"Is that a surrender penalty or a market value reduction?
Is that with or without including terminal bonus accrued to date?
What other funds are there in the product?"

Thanks for your interest.
It's the Surrender Value, according to their online valuation site.
I am able to obtain a daily valuation (when they remember to update it), and a surrender value.
No other valuations/bonus detail.
I only have this investment bond (with L&G).

I have regularly used up my ISA and pension allowances so this investment bond was started on my behalf in July 2003 - I added a further large sum in Jan' 2014 which I was not realistically able to hide anywhere else (Sod's Law).

I have considered leaving and seeing what happens.
Just nervous looking at some others.
There has been an ongoing fault with their valuation site and suddenly nobody seems that fussed about fixing anything, making me even more nervous about leaving it where it is.

Would like to know how to go about withdrawing it most efficiently in case I need to.
I also may need it in a few years, when I retire, so would like to know now in case I need to begin making withdrawals in preparation for my retirement as well.

dunstonh

Just nervous looking at some others.

There are hundreds of them. Some are dire. Some are doing very well. Some are plodding along in between. Closure is no indication of quality.

One of the reasons L&G will have closed it is lack of inflows on new business. It more or less formalises what has happened naturally over the last 10 years.

Would like to know how to go about withdrawing it most efficiently in case I need to.

You would need to work out the chargeable gain. Most insurers will tell you the figure. You can apply top slicing relief if you are not a higher rate taxpayer and as long as the top slice doesnt take you into higher rate, you will be fine.

Most L&G bonds have a range of unit linked funds available. So, you could look at switches within the bond (may avoid a surrender penalty).

I also may need it in a few years, when I retire, so would like to know now in case I need to begin making withdrawals in preparation for my retirement as well.

So, maybe stagger the withdrawals over multiple years to effectively do bed & ISA?

There has been an ongoing fault with their valuation site and suddenly nobody seems that fussed about fixing anything, making me even more nervous about leaving it where it is.

These products were not designed for online services. The methods used to put them online were often crude and basic and as these are effectively run down products, there is no point in spending vast sums (which can go into the hundreds of millions of pounds) just to give a small number of people online access. It can be frustrating but its not enough in itself to pull it when its going to cost you.

ArmyDilllo

That's really useful feedback, thank you.
I was planning to top-slice out next year's ISA (which would be about all I can get out that way), but I believe that will leave the rest exposed to normal income tax.

I just went self-employed last September and started a start-up LLP in January.
I'm not planning to take an income (even if I'm able to) this tax year but will that restrict the amount I can contribute to my pension at the moment as well?
Otherwise I could take chunks out and reclaim the tax (up to my 20% band limit?).

dunstonh

The bond will already be treated as basic rate tax paid. So, as long as your total income and the top slice doesnt take you into higher rate, there will be no more tax to pay. Bed & ISA each year can be an effective way of spreading it over multiple tax years to avoid going into higher rate.

ArmyDilllo

Oh, I didn't know that.
So, if I have no other taxable income this tax year, I could withdraw a combination of my top slice (£16,500); take my basic personal allowance (£10,600); plus my basic rate tax band allowance (£31,785 - 2015/16) to a limit of my tax free allowance this year (£42,385), without paying any tax on it?

That would be really handy for me, for two reasons;
1) being self-employed and taking no income this year.
2) five years after I retire, all of my income will be from ISA investments and tax-free.
Presumably I could then continue taking my basic allowance from the bond, until it's exhausted, and delay drawing on my state pension.
In which case I would definitely leave it where it is.

Thanks very much for the help and advice.
Given me a bit more to think on and plan around.
:beer:


p.s.
What do you mean by "BED" and ISA?

dunstonh

You have it. The top slicing relief means that for most basic rate taxpayers, there will be no further tax to pay. You just need to avoid going into the higher rate band to make sure there is no further tax liability.

bed & ISA is a term most commonly used when drawing out of unwrapped investments to place into an ISA.