Advice re pension

chris107

A friend of mine asked me for some advice regarding her pension.
She is 50 and runs her own business but doesn't earn enough to pay tax. She is paying NICs. She is married but wants to keep the pension independent.
She has four with-profits pensions:
Zurich- value £1500
Norwich Union- value £15000
Royal London- value £14000
Aviva - value £16000


My questions on her behalf are:
1. Are all these investments safe if any the companies went out of business?
2. Is it worth her consolidating them into one package? (I thought not as I imagine it would involve transfer fees etc)
3. Clearly she needs to add a lot more to her pension pot to get a decent pension but as she doesn't pay tax is it worth using a pension scheme- could she just as well drip feed into an ISA?


Thanks for any help on this.

atush

1, yes

2, transferring with profits can be a good idea, but it csn come at a very high charge as some carry exit fees ie an MVR (market value reduction).

3, yes a pension is still a good idea (esp if no expensive non mtg debt and they have a cash emergency fund) as even if you dont pay tax, your still get BRT relief (ie 80 paid into a pension is worth 100) and she can put in her entire income less TR. So if she earns 5K, she can pay in 4K and it be made up to 5K in the pension. Non earners or those who earn much less can all put in 2880/3600.

Isa savings are a good idea as well (if S&S isas) but they dont get TR. They are exposed to debt recovery/means testing while pensions are not. But they can be accessed at any age unlike pensions. If she has quite a bit of spare cash she could do both?

dunstonh

1. Are all these investments safe if any the companies went out of business?

A pension company is just an administrator. She doesnt invest in the pension company. In the unlikely event of an insurer failing (past events prior to credit crunch increased solvency requirements) it would be taken over by another for a knockdown price or the policies closed and funded by the FSCS.

2. Is it worth her consolidating them into one package? (I thought not as I imagine it would involve transfer fees etc)

It may be worthwhile. A cost/benefits analysis would need to be done. Modern plans are cheaper in general than older plans. Although there are some old plans which are still very good or have other benefits that modern plans cant afford to offer.

3. Clearly she needs to add a lot more to her pension pot to get a decent pension but as she doesn't pay tax is it worth using a pension scheme- could she just as well drip feed into an ISA?

ISAs and pensions share the same investments and charges. The only difference is the maturity process and the tax. So, whichever is best should be used.

Zurich- value £1500
Norwich Union- value £15000
Royal London- value £14000
Aviva - value £16000

NU rebranded as Aviva a long time ago. Could the NU plan and Aviva plan be the same one?

chris107

Thanks for the answers.
Dunstonh- you are right, I just checked and the NU and Aviva are the same just different years.


I didn't realise that "tax relief" was available if your income was lower than the threshold required to pay tax. How is the "tax relief" paid -- is it added on by the pension company?


Re consolidation of pensions--- is this something she should do through an IFA? I did suggest to her that she visit an IFA anyway. If so what sort of fees would she be looking at?


Thanks

atush

She could use an IFA but there will be charges.

Probably best to start by contacting the pension company and finding out what the charges are, and if there will be an MVA to move, and if there are any valuable guarantees like GARs attached to the policies.

And yes, the tax relief is added by the pension company

kidmugsy

Now might be a good time to transfer: my wife recently enquired of her with profits provider and was told that there was no MVR at the moment. Best for her to transfer before a market setback I think.