Can your fund die with you even if you haven't bought annuity?

VT82

Hi all. Hopefully a couple of quick questions.

My mum has a legacy pension that has been taken over by Phoenix Life. She’s 65 but hasn’t bought an annuity and doesn’t want to buy one as she has other income and doesn’t think it’s worth it for the small size of the pot and at current returns. She’s been given some information from her supposed financial advisor, who suggests she should transfer it at what seems to be a significant cost (£4k which is c3% of the fund balance).

First question – is there such a thing as a fund where if you die, the balance is forfeit to the provider, even if you haven’t used it to buy an annuity? The FA claims this about her fund, and it’s his main rationale for transferring. But this sounds highly suspect to me. She has historically given this FA authority to get information from Phoenix Life for her accounts. He admits he’s not licensed to give pension advice, but would transfer her to someone he works with who is.

Second question – Phoenix Life says she would be able to draw down from her fund, but after the 25% tax free lump sum, this would need to be in the form of regular monthly payments. But she was hoping for something more like an ad hoc draw down facility. Phoenix Life have suggested there is no penalty to transfer her fund away from them – is there an alternative provider you know of, with little or no upfront fee (certainly less than 3%!), where she would have this functionality? For the size of the pot we’re talking, which it is intended to dwindle rapidly anyway, she’s more concerned with minimising fees than worrying about potential returns.

Or is monthly income the only way draw down can be done due to the tax implications and difficulty of HMRC managing it on an ad hoc basis? She is a standard rate taxpayer and would be looking at drawing down what is possible each year without hitting higher rate tax, but front-loading this rather than getting it in monthly payments.

Also, any other advice you think might be relevant would be very welcome. Many thanks in advance!

Albermarle

is there such a thing as a fund where if you die, the balance is forfeit to the provider, even if you haven’t used it to buy an annuity? Normally not , the pot goes to the beneficiaries but maybe some special case with an old pension . Better wait for more informed posters .
He admits he’s not licensed to give pension advice, but would transfer her to someone he works with who is.
Sounds dodgy and 3% seems high 
She  can open a new pension herself with the facility to draw down the income or take ad hoc payments . There are plenty available and there would normally be no upfront fee  to set it up. The pension should be opened up first and then you request the new provider to transfer in the Phoenix pension, which can take a few days or weeks . Of course there will be charges to operate the pension but this is normal.
If you can indicate the size of the pot then we could better point you in the right direction . If it is quite large it might still be worth considering an IFA , just not this one .

dunstonh

She’s been given some information from her supposed financial advisor, who suggests she should transfer it at what seems to be a significant cost (£4k which is c3% of the fund balance).

She could get it a bit cheaper but that is not significant. It's in the ballpark.   She may well find the alternative recommended is both better and cheaper as a lot of phoenix plans are quite expensive.

First question – is there such a thing as a fund where if you die, the balance is forfeit to the provider, even if you haven’t used it to buy an annuity?

Yes.  There are some pension types where that is the case.  Indeed, the last one I saw, which was some years back, was a Phoenix plan.

 He admits he’s not licensed to give pension advice, but would transfer her to someone he works with who is.

All FAs/IFAs have the permissions with the regulator to do pension switches unless it is a defined benefit pension or a pension with safeguarded benefits.   If there are safeguarded benefits, then additional permissions are required and most advisers do not personally have these.  Only around 1 in 10 do.    The types of plans without death benefits do require that extra permission.

Second question – Phoenix Life says she would be able to draw down from her fund, but after the 25% tax free lump sum, this would need to be in the form of regular monthly payments.

That would be an annuity or scheme pension.

 But she was hoping for something more like an ad hoc draw down facility. Phoenix Life have suggested there is no penalty to transfer her fund away from them – is there an alternative provider you know of, with little or no upfront fee (certainly less than 3%!), where she would have this functionality? 

Virtually all modern personal pensions and SIPPs have this functionality and hardly any of them have an initial charge.    The initial charge is the cost of advice.  Not the cost of the product.  If she doesnt want advice and can pick her own pension and investments and do the work herself then she doesnt need an adviser unless there are safeguarded benefits.   If there are safeguarded benefits then advice is a mandatory requirement.

For the size of the pot we’re talking, which it is intended to dwindle rapidly anyway, she’s more concerned with minimising fees than worrying about potential returns.

The primary concern is investments.  Charges are secondary.    Investment returns can be circa 5-6% a year on average. Charge differences are typically under 1%.

Or is monthly income the only way draw down can be done due to the tax implications and difficulty of HMRC managing it on an ad hoc basis?

HMRC dont care about the frequency. Ad hoc is fine.

Sandtree

I am by no means an expert on pensions, I am okish on annuities, but what my time on annuities has taught me is that the average person mixes up terms all the time and whilst for the average conversation it doesnt really matter for technical questions it really does.

Have you double checked what this “legacy pension” really is? I’ve known people to talk about deferred annuities as a “pension pot” when it isnt at all and there are the prospects of there being no death benefits with those.

garmeg

dunstonh said:

She’s been given some information from her supposed financial advisor, who suggests she should transfer it at what seems to be a significant cost (£4k which is c3% of the fund balance).

She could get it a bit cheaper but that is not significant. It's in the ballpark.   She may well find the alternative recommended is both better and cheaper as a lot of phoenix plans are quite expensive.

First question – is there such a thing as a fund where if you die, the balance is forfeit to the provider, even if you haven’t used it to buy an annuity?

Yes.  There are some pension types where that is the case.  Indeed, the last one I saw, which was some years back, was a Phoenix plan.

 He admits he’s not licensed to give pension advice, but would transfer her to someone he works with who is.

All FAs/IFAs have the permissions with the regulator to do pension switches unless it is a defined benefit pension or a pension with safeguarded benefits.   If there are safeguarded benefits, then additional permissions are required and most advisers do not personally have these.  Only around 1 in 10 do.    The types of plans without death benefits do require that extra permission.

Second question – Phoenix Life says she would be able to draw down from her fund, but after the 25% tax free lump sum, this would need to be in the form of regular monthly payments.

That would be an annuity or scheme pension.

 But she was hoping for something more like an ad hoc draw down facility. Phoenix Life have suggested there is no penalty to transfer her fund away from them – is there an alternative provider you know of, with little or no upfront fee (certainly less than 3%!), where she would have this functionality? 

Virtually all modern personal pensions and SIPPs have this functionality and hardly any of them have an initial charge.    The initial charge is the cost of advice.  Not the cost of the product.  If she doesnt want advice and can pick her own pension and investments and do the work herself then she doesnt need an adviser unless there are safeguarded benefits.   If there are safeguarded benefits then advice is a mandatory requirement.

For the size of the pot we’re talking, which it is intended to dwindle rapidly anyway, she’s more concerned with minimising fees than worrying about potential returns.

The primary concern is investments.  Charges are secondary.    Investment returns can be circa 5-6% a year on average. Charge differences are typically under 1%.

Or is monthly income the only way draw down can be done due to the tax implications and difficulty of HMRC managing it on an ad hoc basis?

HMRC dont care about the frequency. Ad hoc is fine.

Phoenix is by no means unique in writing old with profits pensions on four different bases of death prior to policy maturity:

NR: No return on death
RNI: Return of contributions without interest on death
RWI: Return of contributions with interest on death (typically 3% or 6% pa)
ROF: Return of "fund" on death. Fund may not be what you epect it to be.

xylophone

If you can indicate the size of the pot then we could better point you in the right direction . 

OP says 

(£4k which is c3% of the fund balance).

Assuming that this is a standard DC pension, she could simply open a SIPP with another provider and ask that provider to transfer in for free.

Below might be worth a look as it seems she wants to take the 25% and draw down rapidly.

https://www.hl.co.uk/partners/search/self-invested-personal-pension?partners=1&theSource=PCGSP&Override=1&adg=G+SIPPP+BST&gclid=EAIaIQobChMIpfCvmNGH7QIV8xJ7Ch1InwCAEAAYASAAEgJMZfD_BwE

VT82

Thank you everyone this has been extremely enlightening.

jamesd

Because of the rapid drawing and likely low use of investments Hargreaves Lansdown looks like  a fair fit. No charges to transfer in or withdraw, nor for holding cash. A 0.45% of invested money charge for funds, taken as 1/12 that based on the value each month. 

The exception will be if the Phoenix pension has benefits that by law require advice before transferring. They will say if that applies so no harm to start the process.

To keep the tax simple she could do this:

1. take 25% tax free lump sum and place the rest into flexi-access drawdown, taking just say £1,000 taxable initially. One form.
2. wait until HMRC has sent HL a proper tax code then request the rest. One more form. Or do several chunks, one form each tie.

Dox

VT82 said:

She’s been given some information from her supposed financial advisor, who suggests she should transfer it at what seems to be a significant cost (£4k which is c3% of the fund balance).

He admits he’s not licensed to give pension advice, but would transfer her to someone he works with who is.

You do seem rather ready to sneer at this 'supposed financial advisor'. If your mother isn't happy with the service she's receiving, isn't it for her to decide whether or not to go on using him? As to 'admitting' he isn't licensed to give pension advice, that's not an 'admission' as you seem to believe, but simply a confirmation of the situation, with a clear explanation of what would happen if she does need advice he isn't authorised to give. If he's done an OK job for your mum thus far, don't undermine her confidence in him without good reason.

Thrugelmir

garmeg said:

dunstonh said:

She’s been given some information from her supposed financial advisor, who suggests she should transfer it at what seems to be a significant cost (£4k which is c3% of the fund balance).

She could get it a bit cheaper but that is not significant. It's in the ballpark.   She may well find the alternative recommended is both better and cheaper as a lot of phoenix plans are quite expensive.

First question – is there such a thing as a fund where if you die, the balance is forfeit to the provider, even if you haven’t used it to buy an annuity?

Yes.  There are some pension types where that is the case.  Indeed, the last one I saw, which was some years back, was a Phoenix plan.

 He admits he’s not licensed to give pension advice, but would transfer her to someone he works with who is.

All FAs/IFAs have the permissions with the regulator to do pension switches unless it is a defined benefit pension or a pension with safeguarded benefits.   If there are safeguarded benefits, then additional permissions are required and most advisers do not personally have these.  Only around 1 in 10 do.    The types of plans without death benefits do require that extra permission.

Second question – Phoenix Life says she would be able to draw down from her fund, but after the 25% tax free lump sum, this would need to be in the form of regular monthly payments.

That would be an annuity or scheme pension.

 But she was hoping for something more like an ad hoc draw down facility. Phoenix Life have suggested there is no penalty to transfer her fund away from them – is there an alternative provider you know of, with little or no upfront fee (certainly less than 3%!), where she would have this functionality? 

Virtually all modern personal pensions and SIPPs have this functionality and hardly any of them have an initial charge.    The initial charge is the cost of advice.  Not the cost of the product.  If she doesnt want advice and can pick her own pension and investments and do the work herself then she doesnt need an adviser unless there are safeguarded benefits.   If there are safeguarded benefits then advice is a mandatory requirement.

For the size of the pot we’re talking, which it is intended to dwindle rapidly anyway, she’s more concerned with minimising fees than worrying about potential returns.

The primary concern is investments.  Charges are secondary.    Investment returns can be circa 5-6% a year on average. Charge differences are typically under 1%.

Or is monthly income the only way draw down can be done due to the tax implications and difficulty of HMRC managing it on an ad hoc basis?

HMRC dont care about the frequency. Ad hoc is fine.

Phoenix is by no means unique in writing old with profits pensions on four different bases of death prior to policy maturity:

NR: No return on death
RNI: Return of contributions without interest on death
RWI: Return of contributions with interest on death (typically 3% or 6% pa)
ROF: Return of "fund" on death. Fund may not be what you epect it to be.

Phoenix doesn't write anything. It simply runs off legacy pension books that it acquires from Life Assurance companies. That's it's core business activity. 

garmeg

Thrugelmir said:

garmeg said:

dunstonh said:

She’s been given some information from her supposed financial advisor, who suggests she should transfer it at what seems to be a significant cost (£4k which is c3% of the fund balance).

She could get it a bit cheaper but that is not significant. It's in the ballpark.   She may well find the alternative recommended is both better and cheaper as a lot of phoenix plans are quite expensive.

First question – is there such a thing as a fund where if you die, the balance is forfeit to the provider, even if you haven’t used it to buy an annuity?

Yes.  There are some pension types where that is the case.  Indeed, the last one I saw, which was some years back, was a Phoenix plan.

 He admits he’s not licensed to give pension advice, but would transfer her to someone he works with who is.

All FAs/IFAs have the permissions with the regulator to do pension switches unless it is a defined benefit pension or a pension with safeguarded benefits.   If there are safeguarded benefits, then additional permissions are required and most advisers do not personally have these.  Only around 1 in 10 do.    The types of plans without death benefits do require that extra permission.

Second question – Phoenix Life says she would be able to draw down from her fund, but after the 25% tax free lump sum, this would need to be in the form of regular monthly payments.

That would be an annuity or scheme pension.

 But she was hoping for something more like an ad hoc draw down facility. Phoenix Life have suggested there is no penalty to transfer her fund away from them – is there an alternative provider you know of, with little or no upfront fee (certainly less than 3%!), where she would have this functionality? 

Virtually all modern personal pensions and SIPPs have this functionality and hardly any of them have an initial charge.    The initial charge is the cost of advice.  Not the cost of the product.  If she doesnt want advice and can pick her own pension and investments and do the work herself then she doesnt need an adviser unless there are safeguarded benefits.   If there are safeguarded benefits then advice is a mandatory requirement.

For the size of the pot we’re talking, which it is intended to dwindle rapidly anyway, she’s more concerned with minimising fees than worrying about potential returns.

The primary concern is investments.  Charges are secondary.    Investment returns can be circa 5-6% a year on average. Charge differences are typically under 1%.

Or is monthly income the only way draw down can be done due to the tax implications and difficulty of HMRC managing it on an ad hoc basis?

HMRC dont care about the frequency. Ad hoc is fine.

Phoenix is by no means unique in writing old with profits pensions on four different bases of death prior to policy maturity:

NR: No return on death
RNI: Return of contributions without interest on death
RWI: Return of contributions with interest on death (typically 3% or 6% pa)
ROF: Return of "fund" on death. Fund may not be what you epect it to be.

Phoenix doesn't write anything. It simply runs off legacy pension books that it acquires from Life Assurance companies. That's it's core business activity. 

I did say 'old' with profits business. It was easier to say 'Phoenix' than Royal Life, Sun Alliance, Scottish Mutual and a plethora of other companies now under the Phoenix umbrella.

However, increment policies are still available for some of these contracts, and being bought (albeit not many), so I am still technically correct.