Pension/investment advice

Trinity_Phil

I have just tried reading this article on UFPLS

https://www.moneymarketing.co.uk/ufpls-vs-drawdown/

Has anyone got any paracetamols ???? :shocked::shocked:

Trinity_Phil

Deneb wrote: »

Phil, FWIW I still pay into the fed group insurance, and have every intention of continuing to do so.

Depends what you need in the way of insurance (some things such as phone cover don't bother me as I'm perfectly happy with a cheap phone) but an annual travel insurance policy and the breakdown cover (ours is RAC and its full cover including at home, recovery and Europe - at least for now. I don't know if that's national, or whether each Fed branch has their own arrangements) would cost a good chunk of that premium if bought separately/elsewhere. Add on the retired officer's £55K life insurance up to age 65, plus £27.5K for your OH and it's very worthwhile IMO.

OK, you might think you don't need the life cover after you've paid off the mortgage, but if the worst were to happen to you in years to come, your OH will receive half your uncommuted pension entitlement. Wouldn't the extra £55K go at least some way towards mitigating the loss of income?

Thanks for the prompt reply, Deneb....regarding the Car Breakdown cover, as per Martin Lewis' recommendation on here, both of our daughters have got cover through AutoAid at £48 p.a (I think), which I believe gives the same amount of cover as the AA/RAC's top package ??, so I am considering that too.
Until about an hour ago, I hadn't even contemplated the life insurance problem, but our house is worth c.£175k which is obviously included in our wills to both daughters so I am wondering if we actually need life insurance any more ??
(The Fed want another £9.50 per month to provide SWMBO with £25k life cover up to the age of 64).

Deneb

Trinity_Phil wrote: »

Thanks for the prompt reply, Deneb....regarding the Car Breakdown cover, as per Martin Lewis' recommendation on here, both of our daughters have got cover through AutoAid at £48 p.a (I think), which I believe gives the same amount of cover as the AA/RAC's top package ??, so I am considering that too.
Until about an hour ago, I hadn't even contemplated the life insurance problem, but our house is worth c.£175k which is obviously included in our wills to both daughters so I am wondering if we actually need life insurance any more ??
(The Fed want another £9.50 per month to provide SWMBO with £25k life cover up to the age of 64).

Well, as with everything financial, it comes down to you deciding what cover you need, who can provide it, and at what cost.

You may not need European breakdown cover for instance, in which case Autoaid may well be cheaper for you (they charge extra for it if you need it I believe). With two cars and a motorhome, all of which are covered under the RAC group insurance policy, I save the cost of separate breakdown and recovery cover on the motorhome insurance.

Again, you may decide you have no need for life insurance. You won't need it to cover an outstanding mortgage. The only consideration, as I mentioned, is whether you want to cover loss of income in the form of the reduced pension your wife would receive in the unfortunate event of your early demise.

I'm afraid there's no easy, one size fits all answer. You have to sit down and work out what you need, shop around and compare costs. Annual travel cover is important to us, along with the scope of the RAC cover, so I'm happy to pay for it. Depending on your needs, they may not be for you.

£48 including cover for your wife is higher than here though. I'm paying £35.27 all in, wife included!

DairyQueen

I agree with Deneb on the insurance issue. It's impossible to say if this is a good deal without comparing like for like to individual products, and establishing whether you need everything provided in the all-inclusive offer.

For example, we have travel insurance included free with our current account so we wouldn't need that. Legal cover is a cheap extra added to our house insurance. I need Homestart but not European breakdown cover, and I always shop around each year. Your needs will completely different.

Re: topping-up your wife's pension.
If she will have unused personal tax allowance at any point when she stops working then, yes indeed, it's worth popping that £20k into her pension rather than into an ISA. Note that it will take her a few tax years to contribute it all (as she is limited to how much she can contribute to a pension by her annual earnings).

For example:
Wife gross earnings = £9,000p.a.
Her contribution to employers pension = £50 p.m. (£600 p.a.)
Employers contribution to the pension - say 6% (just as an example) = £540
Total contributions to employers's pension = £1,140
Unused allowance available to contribute = £9,000 - £1,140 = £7,860 gross
So, she would make an extra contribution to a pension of £6,288
Government would add 25% = £1,572
£6288+£1572 = £7860.
She has therefore made an instant 25% on her extra contribution of £6288. The tax relief is a gift. The same investment in an ISA would cost her the full £7860. Over 3 tax years her £20k will be worth £25k just for using a pension wrapper.

Say she is 60 when she wishes to make the first withdrawal, and she has stopped working. She has a personal tax allowance of (say) £12k (for 2019/2020 tax year but usually increased annually with inflation). Assume she has no other taxable income.

She has a few ways of managing the withdrawals from the pension (drawdown).

1) She can take 25% of her whole pension pot tax free on commencement of drawdown. and each withdrawal of the remainder will then be treated as 100% taxable. However, each year that she has zero taxable income she can withdraw her entire tax allowance of (say) £12k from the pension without paying income tax

2) If She doesn't need to withdraw 25% of the whole pot at the start then she can use 'UFPLS' and every withdrawal will be 25% tax-free and 75% taxable. With a personal allowance of £12k (and no other taxable income) she can take £16,000 from the pot completely free of tax every year. Over a period of a few years she could theoretically extract her whole pension pot tax free. She could use/all of it for income or transfer each withdrawal into an ISA.

This is what is meant by tax free on way-in and on way-out.

If she was to make the first of these pension contributions by 5th April this year she could have the whole £20k invested in a pension by April 2020 (using tax years 18/19, 19/20, 20/21).

Hope this makes sense.

One final point worth considering. When your wife is no longer working she will still be able to make an annual max pension contribution of £2880 net each year. The taxpayer will add £720 (25% uplift to gross £3600).

There are plenty of threads on the forum that explain how this works ('pension contribution for non earner').

Trinity_Phil

Thanks again, Guys... I really appreciate your efforts in trying to educate me on financial matters...it sure is a minefield out there !!
I will run your suggestions by our IFA next week and see what he thinks to them :T

enthusiasticsaver

Trinity_Phil wrote: »

That quote is not for setting up the ISA's...that is for setting up and managing the wife's £21,900 pension fund over the next 11 years until she can draw her SP, plus an additional 1% (£219) set-up fee to our IFA, that I have only just noticed !!

For the ISA'S there is a set-up fee of £400 then 1.27% p.a management fee plus (but could be including ??) 0.75%p.a IFA's fee !!
The ISA's are with the PruFund Cautious Fund ISA and according to the documentation they have sent, was apparently set up in Feb 2015 and there is a graph attached which apparently shows "performance" at 20.6% but it also mentions "discrete" performance for 2016 at 2.4%, 2017 at 8.2% and 2018 at 3.0% and there is also mention of Annualised Performance for the 3 years to 31/12/18 at 4.5% ?????
They are claiming that the expected Growth Rate for this fund is 5.50% p.a. GROSS.
If someone can translate all that into English then I would be very grateful !!

The discrete performance is just over each year so 3% in 2018 and 8.2% over 2017. Compare to the Vanguard LS to see how that does at the level you think would be appropriate for you. I prefer to look at cumulative as that shows the starting point over a period of years usually on a mountain graph showing it going up and down and the usual dips and falls and rises and as most people invest medium to long term that is more helpful to me. I prefer to buy in a dip. Presumably the annualised performance percentage is just an average of the performance over the 3 years . I am sure there are cleverer ways to describe the terms.


I have managed to find the breakdown of what the Prufund cautious fund is invested in and needless to say it is very bond heavy and low in equities which is why the growth is so low. I would say that low growth and high charges does not sound as if it will keep up with inflation but at least it should not be too volatile. On Trustnet it says it performed at 4.5% over the last year. That is the Prufund Cautious Managed S5 so there may be more than one. It says the AMC is 1.75% though and then you have the IFA charges too. On low growth those charges will erode the performance percentage.


Our reasoning not for using the IFA is what could he add? I already knew how to invest and we managed our risk by keeping a lot back in cash. We then opted for a VLS60 on the grounds that the VLS20 and VLS40 like the Pru were very bond heavy and not likely to produce high growth. If we were investing almost all our money and not keeping a wadge back in cash I would probably have gone for the VLS40 for even lower volatility. I liked the diversity which every investor says you need to minimise risk and I liked the low charges.

I would read up lots between now and seeing your IFA. Compare various funds and learn about platforms (you need one to be able to invest) as you cannot just buy the funds direct from the fundhouses unless you are investing hundreds of thousands usually. Also you may want to buy more than one fund. Lots of platforms available and loads have research on lots of funds. Hargreaves Lansdowne is one many people recommend.


I am still unclear why you have to move your wifes pension fund. What is the performance like on the one she is in?

enthusiasticsaver

I have just read back and can see that your wife's pension is with Royal London. Presumably it is a DC pension or is it DB and £21,900k is the transfer value? I think you need more information on how this is performing and I would be quite sceptical about why your so called IFA is only advising Pru products and indeed why many IFAs suggest them, mine included a few years back.


As I said earlier I transferred my old DC pension from a previous employer into my LGPS after several years of working there so that could be worth exploring. I would not rush to transfer it without knowing why this Pru pension is so much better than her Royal London and why the fees are so high and predicted growth so low.

enthusiasticsaver

Last post I promise

Using trustnet (a valuable resource) a quick search on Vanguard LS20 which has 20% equities and 80% bonds says cumulative performance over 5 years is 27% which is the same as the Prufund cautious although the fees on the Vanguard LS is 0.22 compared to 1.75% on the Prufund. The Prufund has 30% equities/other compared to 70% bonds or fixed term instruments so there is no direct comparison with the Vanguard LS. The Vanguard LS40 has a cumulative performance of 35% over 5 years. The Vanguard LS60 has a cumulative performance of 45% over the same time period. Do you see a pattern there? In general the higher the level of equities the better the performance but they can also be more volatile. Trustnet has a risk score which is useful.

Thrugelmir

enthusiasticsaver wrote: »

I have managed to find the breakdown of what the Prufund cautious fund is invested in and needless to say it is very bond heavy and low in equities which is why the growth is so low.

Equities on the whole do not generate growth, income reinvestment is the driver. Out of some 25,000 listed US companies only 800 or so have beaten the return on cash over a 25 year period. Likewise the average lifespan of a listed company is only around 15 years now.

With the increasing tendancy of investors to favour the low cost large cap tracker global funds. 80% of all market trades are conducted in only 110 listed global stocks. There's a lot riding on the likes of Amazon, Netflix, Apple etc.

Trinity_Phil

enthusiasticsaver wrote: »

I have just read back and can see that your wife's pension is with Royal London. Presumably it is a DC pension or is it DB and £21,900k is the transfer value? I think you need more information on how this is performing and I would be quite sceptical about why your so called IFA is only advising Pru products and indeed why many IFAs suggest them, mine included a few years back.


As I said earlier I transferred my old DC pension from a previous employer into my LGPS after several years of working there so that could be worth exploring. I would not rush to transfer it without knowing why this Pru pension is so much better than her Royal London and why the fees are so high and predicted growth so low.

Having looked through all of the reams of documentation that we have now amassed, I believe it is a DC pension - it is called the Royal London Personal Pension With Profits Fund, but since 2013 they haven't paid any bonuses whatsoever and it appears to have remained static at £21,900, if that helps ??