With-profits and transfers

Aylesbury_Duck

I've been doing a lot of reading to inform future pension choices.  I'm 47 and as part of my pension portfolio I have £105k with Aviva that I am examining and considering transferring to my Vanguard SIPP.   One of the considerations is the saving in fund charges: 1.00% for the Aviva pension versus 0.39% for the SIPP.  My Aviva plan is made up of the following:

£21k in UK equities 
£65k in Global equities
£10k with-profits contribution
£7,500 with-profits bonus (was £6,800  10 months ago)
£500 with-profits interim bonus (was £691  10 months ago)

I left that job in 2014 so the top three figures in that list only change as fund prices change.  The bonus and interim bonus do change and it's those that I'm trying to better understand.  What I don't want to do is transfer to the SIPP to save fund charges but mistakenly disregard the with-profits benefits in the calculation.  The regular bonus rate is 4.25% for regular and single premiums.  I'm no longer making contributions to this plan (and haven't since 2014) but the bonus rates change.  I've read around as much as I can but I still don't quite get it.  Am I correct to think that the interim bonus gets added to the bonus at the end of the year and the process starts again?  I understand that the bonus fluctuates but when it comes to factoring the comparative costs of the Aviva plan versus the SIPP, should I be considering the several hundred pound bonus every year?  i.e. fund charges for Aviva are £1,050 p.a., SIPP is £409.50 but with the interim bonus included, the two are broadly similar?

Edited to add: There is also a final bonus element.  At my last statement (December 2019), the transfer value was £17k higher than the plan value.  So if I transfer, I think my £105k becomes something like £122k but I lose future growth in that final bonus?

dunstonh

Am I correct to think that the interim bonus gets added to the bonus at the end of the year and the process starts again?

Only on old conventional with-profits plans.   On unitised with profits, it accrues daily.

 I understand that the bonus fluctuates but when it comes to factoring the comparative costs of the Aviva plan versus the SIPP, should I be considering the several hundred pound bonus every year?

The annual bonus, once added, cannot be taken away.   On unitised WP funds, this means the unit price cannot go down.  However, the final bonus (which also accrues daily) is the one that can fluctuate.

  i.e. fund charges for Aviva are £1,050 p.a., SIPP is £409.50 but with the interim bonus included, the two are broadly similar?

The multiple types of bonus are part of the return and should not be confused with charges.

Aviva have multiple WP funds.   They also have a guaranteed WP fund that has a 4.25% guaranteed minimum bonus rate.    Some may consider that valuable for the lower risk part of their portfolio. i.e. You have a different pension for the higher risk side and keep the Aviva one going for the lower risk side.

Linton

1) Bonuses are added to the investment and cannot be removed.  However the price/unit of the investment can change, though the changes are usually pretty small with WP funds.
2) Fund charges are included in published returns so if one fund has a better return than another that is what you get.  Fund charge figures are for information only.
3) You would have to get a current value for the transfer value and the terminal bonus.  They may have changed following COVID.

Aylesbury_Duck

Thanks dunstonh.  This plan sits alongside a Scottish Widows one of similar size, a very small (£7k) pot in my SIPP and I'm now on the LGPS with a rapidly growing AVC pot as well. I wouldn't consider any of them to be higher risk so I could take a greater risk with the Aviva plan, given that charges-wise, it's the most expensive of them.  I understand your point about not confusing bonuses and charges, thank you.  At this stage, it seems prudent to sit tight until I have a better understanding of things.  The £600-ish saving in charges every year looks to be at least partially offset by the annual bonus, but I appreciate that the fund charges are a fixed percentage whereas the bonus will fluctuate.