Pheonix Life (ex NPI) Pension Proposal

mitchino

I am self employed and have a personal pension with Pheonix Life, formally NPI. The pension is small, I haven't paid enough into it over the years, but I am planning to pile some more savings into it and up my monthly contribution.

Recently Pheonix Life sent out a letter asking if I'd be interested in making some changes that they believe will benefit me. Currently my plan is invested cautiously in a with profits fund. This plan has a guarantee that part of my savings will grow by at least 4% a year.

Pheonix life are asking me whether I'd like to exchange my guarantee for an immediate increase in my pension savings, which would then be invested in a unit-linked fund, which has no guarantee.

The value of my plan is currently about £42000. In Pheonix Life's customer case studies brochure, they say if I choose to change my pension this would increase immediately to around £75,000.

At this stage they just want to know what their customers think, there would be no immediate change.

I'm not sure what to do, is this a good idea? I'm naturally suspicious of this kind of things, as I suspect it will benefit Pheonix Life more than it does me!

Any advice greatly appreciated.

SonOf

Insurers appear to be looking at buying people out of their guarantees. This happened last year with Royal London doing something similar with another guarantee.

I'm naturally suspicious of this kind of things, as I suspect it will benefit Pheonix Life more than it does me!

Insurers generally like to get rid of certain liabilities sooner rather than later. When they have excess cash available, they will often offer to buy people out of the liability. With pensions, this requires the high court. So, they are not going to start a costly process if they think only a small number will do it. In the Royal London case last year, people overwhelmingly voted to give up the guarantee in exchange for a higher figure.

You dont mention how long you have until retirement. That is a key bit of missing info as the increase needs to be looked at over the years remaining. That said, personally, I would be inclined to do it as I believe the 4% growth rate is before charges. So, the net return is not that high. Bog standard middle of the road funds have grown in excess of that after charges. So, having a nice bump up in value and moving into something modern may not be a bad idea. However, other investors may use the guarantee to offset the risk of their other investments. i.e. they know they have £x in relatively safe and steady and can then invest in a higher level of equities in their alternative investments and pensions. So, instead of balancing investment risk within one pension, they do it over multiple pensions with one being higher and one being lower and averaging out to what they want it to be.

Any advice greatly appreciated.

Nothing you read on here is advice. It is just opinion and discussion. Advice on financial products is regulated and the board is not regulated to give advice.

mitchino

Further info: I am 59 and my assumed pension date is Oct 2025. My state pension date is 20/05/2027.

Not that I'm planning to retire on a certain date, I suspect I'll have to keep working to some extent until I am stiff.

Currently I only pay £50 a month into the Pheonix Life plan, but I'm about to increase that to £200. I'm also thinking of sticking a lump sum of £10,000 in. I've had a better year business wise than normal.

Malthusian

NPI pensions with 4% guaranteed growth often have hefty transfer penalties in my experience.

If you currently have £42,000 and Phoenix Life are offering to let you turn that into £75,000 which you can then invest in unit-linked funds directly linked to the stockmarket with no guarantees, then in man-down-the-pub terms it is almost a no brainer.

If you are close to retirement (i.e. not many 4%s left to be paid) it would be money for nothing, and if you are many years from retirement, that is many years in which a diversified stockmarket has a reasonable expectation of delivering higher growth than 4%pa (with no guarantees).

However, that is assuming transfer penalties aren't a factor. In some pensions of this kind I've seen, there is a very high transfer penalty (33% - 50% of the fund value or more). Which means the 4% guaranteed growth is an irrelevant gimmick and the real growth comes from the eventual removal of the transfer penalty at the pre-selected retirement age. If what Phoenix are offering to increase is the transfer value and not the higher fund value, it could be less generous than it sounds - effectively an early reduction in the transfer penalty rather than an increase to what the policyholder is due.

So it would be useful to know the fund value and the transfer value of your Phoenix pension and which one they are proposing to increase.

456elsbot

@Malthusian - I think that you have hit the nail on the head and have explained the situation perfectly.


I received the same letter, which at first glance looked like they were going to give me some sort of uplift. However, when you drill down, it appears that the uplift is the MVR that they would have employed before the designated mature date (in my case 65). Hence, its not as good as it might seem, and the case studies that they give are a little misleading. The uplift is the MVR. There may be something on top, but there is nothing to say that this will be the case.


Notwithstanding this, in my case its a no brainer to tick the box in support of the proposal. I'm over 55 (just) and am currently planning to retire later in the year. To be able to transfer my phoenix pension elsewhere without the really heavy MVR (which is currently about 30%) is to my benefit.


Whatever the final position there is no harm in ticking the box in support at this time. It does not hold you to anything and if you later choose to retain the 4% level of growth you can. By ticking the box, you will however find out exactly what the offer is, and can then make a more informed judgement.

Green.Lander

Hi Mitchino, I received the same letter in December. I am also 59 but have not paid into the fund since the 80’s. My value of my fund is around £24k now I must admit I did not see any offer and when I phoned it was just to register my interest. I find the company quite hard to deal with and the fund has not grown much so I will see what the formal offer is. I plan to retire around 62 so it would be a nice uplift.

lisyloo

I said yes on the basis that there was no commitment and I’d rather have the option.

I don’t understand the uplift being the same as the MVR.
An MVR is a reduction, and uplift is an increase.
Are you just saying it’s the same amount.

Anyone know if you could get the uplift and transfer out.
Mine has about a 28% MVR and age restriction of 65.

456elsbot

@lisyloo


My yearly statement provides me with a fund Value of X, and a transfer value of Y. The X will increase at 4% until I'm 65. The Y value is about 30% less than the X value.


Hence if I transfer out or cash in before I'm 65 I take a 30% hit.


As I understand matters Phoenix appear to be offering the X value now. That being the current fund value without market reduction they apply to the transfer one.


Hence its an uplift/increase on the current transfer value as it removes the reduction applied in the case of taking/transferring the pension early.


They may offer a little more, but that remains to be seen. Unless there is enough support (which does not commit anyone) we will never know what the actual offer is.


In my view there is no harm in finding out what the offer will actually be for each person involved. whether it will be beneficial depends on when you intend to retire, whether you want to transfer your fund, or whether you are happy to sit on your fund until 65 with a guaranteed 4% rate.


Hope this helps.


This is obviously only my view based on my own understanding.

lisyloo

Thank you very much for taking the time to explain.
I don’t recall seeing that one my statement but I might not have looked properly.

If the MVR is removed and we can transfer out without penalty then that’s great.

If they are giving the benefit but you have to stay in their funds then that’s not so good.

The devil will be in the detail but I see no downside to seeing the detail.

green_man

I did something similar with Phoenix a few years ago. In my case it was a Guaranteed annuity that I was giving up (around 6%) and for that I was getting an 85% boost in Fund value (and transfer value). Whilst I recognised the value of the GAR, this seemed more than adequate compensation and opened up a few more options w.r.t early access, so I went for it.