Old 'with profits' pension fund - worth keeping?

LordRocket

I have an old Friends Provident (now with Aviva) pension fund from 1991 with the last payment I made being in 1994; in round numbers the current fund value is £2300 with a final bonus of £560 and an exit charge of £20. There is £10k of life assurance with the product for which they take out around £20 a month. There are no guarantees associated with the product.
For such a small fund and because the life assurance is of little value to me I'm thinking of transferring the fund into one of my other pension pots. I've read lots of bad things about with profits funds and it seems 'tidier' to put this money somewhere else (and because the £20 a month life assurance cost seems to be more than any gains the fund is making) but before I do am I dropping a clanger and should I instead be adding to this fund rather than putting my money into another of my DC pension pots? 
Thanks in advance.

Malthusian

LordRocket said:

There are no guarantees associated with the product.

Assuming that's true I can see no reason not to transfer it.

£20 per month for £10k life insurance is horrendously expensive unless you're elderly / in poor health. Or unless there's critical illness or some other kind of benefit. The life insurance alone costs 10% of the fund value per year so it wouldn't be a surprise that the fund isn't growing.

Albermarle

With Profits funds are designed to reduce volatility and smooth returns over good and bad years.
This seems to usually come at the expense of weak returns and they have a rather opaque structure so they are generally out of favour. 
There can be some argument for keeping one as a safety net but for this amount it is probably better just to transfer it .

dunstonh

Pension term assurance was a great option 20+ years ago as you got tax relief on your life premiums.   However, in the period since, the cost of life assurance has fallen significantly.  So, that has pretty much wiped out the tax benefit plus more unless health prevents you from getting alternatives if you were to still need life assurance.  If you don't then there is little point paying for something you do not need.

Mothman

My mother has an Aviva With-Profits investment bond and according to the latest valuation it produced 9% total return from Feb 2017-Jan 2021 so she is cashing it in and it will be invested elsewhere. Pleny of low-medium risk funds out there to choose from with better performance for example over the same period CG Absolute Return = approx +23% & VLS40 = approx +24%, so even when allowing for platform and IFA fees these would have outperformed the Aviva WP fund by some margin. My mother also has a Scottish Widows With-Profits investment bond and performance of that fund has been even worse!

dunstonh

My mother has an Aviva With-Profits investment bond and according to the latest valuation it produced 9% total return from Feb 2017-Jan 2021 so she is cashing it in and it will be invested elsewhere.

 The annual bonus has not been fully restored from its fall in late April last year.  That will likely happen around late April this year (ignoring other events that may occur between now and then).  It fell by around 10% but barely any has been put back on so far.

I have some of these still left on our books and they tend to lag behind but average out around 5% p.a. long term (through credit crunch and CV etc).   I don't particularly like them as an investment as they don't fit modern ways of doing things but the old NU WP fund is not bad (not to be mistaken with some of the Aviva legacy company versions).  

Albermarle

I had a unit linked WP fund with Scottish Widows until I transferred it in the middle of last year  and it averaged out around 4 to 5% as well  over the last few years , so could have been worse.

Mothman

dunstonh said:

My mother has an Aviva With-Profits investment bond and according to the latest valuation it produced 9% total return from Feb 2017-Jan 2021 so she is cashing it in and it will be invested elsewhere.

 The annual bonus has not been fully restored from its fall in late April last year.  That will likely happen around late April this year (ignoring other events that may occur between now and then).  It fell by around 10% but barely any has been put back on so far.

I have some of these still left on our books and they tend to lag behind but average out around 5% p.a. long term (through credit crunch and CV etc).   I don't particularly like them as an investment as they don't fit modern ways of doing things but the old NU WP fund is not bad (not to be mistaken with some of the Aviva legacy company versions).  

 Mum's Aviva NU WP policy has averaged 3.9 % pa after fees in the almost 21yrs she's had it (so includes dot.com crash as well), this compares to 5.1% for the Prudential & 3.5% for the Scottish Widows WP bonds taken out at the same time for the same amounts. However like you say there may or may not be some additional Aviva bonus waiting in the wings, but I guess we will never know as it's being cashed in so it can be invested elsewhere.

dunstonh

Mothman said:

dunstonh said:

My mother has an Aviva With-Profits investment bond and according to the latest valuation it produced 9% total return from Feb 2017-Jan 2021 so she is cashing it in and it will be invested elsewhere.

 The annual bonus has not been fully restored from its fall in late April last year.  That will likely happen around late April this year (ignoring other events that may occur between now and then).  It fell by around 10% but barely any has been put back on so far.

I have some of these still left on our books and they tend to lag behind but average out around 5% p.a. long term (through credit crunch and CV etc).   I don't particularly like them as an investment as they don't fit modern ways of doing things but the old NU WP fund is not bad (not to be mistaken with some of the Aviva legacy company versions).  

 Mum's Aviva NU WP policy has averaged 3.9 % pa after fees in the almost 21yrs she's had it (so includes dot.com crash as well), this compares to 5.1% for the Prudential & 3.5% for the Scottish Widows WP bonds taken out at the same time for the same amounts. However like you say there may or may not be some additional Aviva bonus waiting in the wings, but I guess we will never know as it's being cashed in so it can be invested elsewhere.

There are also several versions of the WP fund.  So, that can account for these sorts of differences.
Do remember the tax issues that can exist when surrendering hte investment bond and that most of the bonds available 21 years ago, used the unit-linked fund range.  So, if it cannot be surrendered all at once, there should be conventional unit linked funds available with a fair choice for any amount left behind until it can be surrendered.   Also remember that any money in the investment bond is not included in any means tested benefits, including local authority care.  May or may not be an issue but again, just mentioning it.

Mothman

dunstonh, thanks for the heads up regarding the unit-linked surrender issue. The IFA concerned hasn't mentioned this but that doesn't surprise me as he is not the best, the surrender form has already been submitted so I guess we will wait to see what happens. The IFA did advise my Mother not to cash in her investment bonds as there would be a large tax bill to pay, however when I sent him my tax calculations he admitted he had got it wrong, it appears he forgot to divide the gain by the number of full policy years when doing the tax calculation, which doesn't actually fill me with confidence.

This is the start of the process of my our Mother passing on her invesetments to my brother & I, as her income, cash & property assets are more than sufficient to last her to the end of her days. Our calculations are based on funding the very highest level of private care and so means tested benefits & local authority care shouldn't be an issue but thanks for drawing this to my attention.