Legal & General increasing charges on pension

Sapphire

I have received a letter from Legal & General saying that they are increasing their fees with 'an increase of around £30 to around £70 for a customer with a policy with a current value of £50,000'. They say that 'However, we expect that the other changes will enhance the returns we are able to achieve on your behalf,' but they don't stipulate how 'other changes' will 'enhance the returns'.

I wondered whether anyone else had received such a letter and if so what their opinion is about this. I am very suspicious of such rises, since it seems to me that their fees are high enough already.

Is it worth switching to another pension company?

dunstonh

I am very suspicious of such rises, since it seems to me that their fees are high enough already.

L&G have a very cheap stakeholder. Indeed, it is one of the cheapest you can get for funds over £50k.

However, over the years they must have built up dozens of different types and versions of pensions (it seems like that when you scroll down their lists). What type of pension do you have?

From memory, they have some external pension funds which they offered at stakeholder pricing but were increasing the charges on those. No surprise as they were too cheap and must have been loss making. Especially with fund based discounts applying to them as well.

Is it worth switching to another pension company?

Not if it means paying more at another company or not getting the investment options you want. A small price increase doesnt suddenly make them expensive. You have to look at the charge in context and compare it to what is available out there today as an alternative.

Sapphire

dunstonh wrote: »

L&G have a very cheap stakeholder. Indeed, it is one of the cheapest you can get for funds over £50k.

However, over the years they must have built up dozens of different types and versions of pensions (it seems like that when you scroll down their lists). What type of pension do you have?

From memory, they have some external pension funds which they offered at stakeholder pricing but were increasing the charges on those. No surprise as they were too cheap and must have been loss making. Especially with fund based discounts applying to them as well.



Not if it means paying more at another company or not getting the investment options you want. A small price increase doesnt suddenly make them expensive. You have to look at the charge in context and compare it to what is available out there today as an alternative.

Many thanks for your reply. I am not sure what type of pension plan I have with them. It was taken out about 15 years ago and is called a 'With Profits' plan. Unfortunately, at the time I was advised to move the pension I had with a company I'd worked with to the Legal & General scheme. (I received compensation for mis-selling, which was added to the L&G scheme.)

Despite a good performance over the last four years (2002, -9%; 2004, +14%; 2004, +12%; 2005, +19%; 2006, +11% before tax), this pension scheme has only yielded 8% 5-year annualised return to me, which makes me feel that the fees charged by L&G must be high already. I am concerned about what will happen with the pension during the next few years, given the downward trend of the economy.

What with Standard Life raising their mortgage interest rates recently and not lowering them following the BoE interest rate fall, and now this fee increase to my pension scheme, I am getting increasingly nervous about any assets I have with any financial institutions. (Luckily I can afford to repay the mortgage at any time.)

dunstonh

I am not sure what type of pension plan I have with them.

Sounds like a section 32 buy out bond or a personal pension. With it being 15 years ago, it is what it typically referred to as a legacy pension. Legacy plans tend not to be as good as modern plans as far as features and charges go but there are exceptions. Some legacy plans are actually cheaper than modern plans so you cannot assume anything. Over the years, companies came out with different versions. Maybe version 6 had lower charges or version 2 had special terms if you paid a certain amount in etc. This is why it is hard to say generically what is best as you could be in a version that has decent options.

this pension scheme has only yielded 8% 5-year annualised return to me, which makes me feel that the fees charged by L&G must be high already.

Nothing to do with charges. It is to do with where it is invested. You have it in with profits and an 8% a year return over 5 years is not bad for with profits. Not quite up to Pru or NU level but certainly better than a lot of others.

What with Standard Life raising their mortgage interest rates recently and not lowering them following the BoE interest rate fall

That has nothing to do with financial strength. Standard life dont use the BoE interest rate but use LIBOR.

I am getting increasingly nervous about any assets I have with any financial institutions.

Switch the with profits fund to their unit linked funds and you can stop worrying.

You are worrying about things for the wrong reasons and making some assumptions which are not correct. You should never make financial decisions if you dont know what you are doing.

As it stands, the L&G pension could be good, it could be average it could be improved upon. If it is a section 32 buy out bond (possible as they tended to be used a lot for occ pension transfers) then there could be a lot of benefits attached to it which are not dependent on fund performance.

You are totally right to review the pension. Any pre 2001 pension scheme needs reviewing as they were set up on old rules using old terms based on the old economy. However, I am not sure you are really in the best position to decide whether this plan is good or bad and transferring it could do more harm than good. If we jump ahead a bit, what type of pension would you transfer this L&G one to and where/how would you invest the money?

dunstonh

ARGHH. I wrote a long response and the board timed out and lost it. This one is a bit shorter.

What with Standard Life raising their mortgage interest rates recently and not lowering them following the BoE interest rate fall, and now this fee increase to my pension scheme, I am getting increasingly nervous about any assets I have with any financial institutions. (Luckily I can afford to repay the mortgage at any time.)

Standard Life interest rates are linked to LIBOR and not the BoE interest rate. Their change has nothing to do with financial strength.

If your investments are in unit linked funds then you really have nothing to worry about. With profits have greater concerns and you should investigate whether L&G allow you to switch to unit linked funds. However, you should check if there are any guarantees in place first that would be lost if you did this.

this pension scheme has only yielded 8% 5-year annualised return to me, which makes me feel that the fees charged by L&G must be high already.

That is an incorrect assumption. The returns reflect where you are invested. Not the charges. 8%pa from with profits isnt bad. It isnt as good as NU or Pru but its a damned site better than many others. You also have to remember that you are not fully invested in the stockmarket so you are not going to get stockmarket level returns.

The version of pension you got is important to know because you may have features and options which are not available today. Such as guaranteed minimum pension or guaranteed annuity rates. Also, some legacy pensions can actually be cheaper than modern ones.

You are right to review the pension as anything pre 2001 is classed as legacy and is often out of date. You are right to review the with profits fund. However, you are making the wrong assumptions.

Sapphire

dunstonh wrote: »

ARGHH. I wrote a long response and the board timed out and lost it. This one is a bit shorter.

Standard Life interest rates are linked to LIBOR and not the BoE interest rate. Their change has nothing to do with financial strength.

If your investments are in unit linked funds then you really have nothing to worry about. With profits have greater concerns and you should investigate whether L&G allow you to switch to unit linked funds. However, you should check if there are any guarantees in place first that would be lost if you did this.

That is an incorrect assumption. The returns reflect where you are invested. Not the charges. 8%pa from with profits isnt bad. It isnt as good as NU or Pru but its a damned site better than many others. You also have to remember that you are not fully invested in the stockmarket so you are not going to get stockmarket level returns.

The version of pension you got is important to know because you may have features and options which are not available today. Such as guaranteed minimum pension or guaranteed annuity rates. Also, some legacy pensions can actually be cheaper than modern ones.

You are right to review the pension as anything pre 2001 is classed as legacy and is often out of date. You are right to review the with profits fund. However, you are making the wrong assumptions.

Thanks so much for the helpful responses.

In regard to Standard Life, it is not their strength that concerns me - it's just that I have a mistrust of financial institutions generally for a variety of reasons. The current financial climate doesn't help to reassure me.

I am not making any assumptions - I simply don't know enough about pensions (unlike savings schemes) to form an opinion. In fact, my unease may be precisely because of my ignorance, hence my post on this forum.

I only have a few years to go as far as the pension is concerned, so changing to a mainly stockmarket-based pension would probably not be a very good idea. I will try and find out what type of pension I have.