Executive Benefit Pension Scheme concerns

MORTEA_2

Just wondering whether anyone could offer any advice regarding my money purchase scheme (Executive Benefit Pension Plan)I Am due to take my pension at 60 which will be in May 08.Being as the scheme over the past 7 years has performed extremely badly with bonuses over those years collectively totalling £200 or so I will have to carry on working for at least another five years.The scheme has been in a dead fund, so to speak,for those years and was fairly recently taken over by an organization which specialises in "hoovering up" closed schemes.Being as the scheme incorporates a Guaranteed Basic Sum and a Guaranteed Annuity Rate, in order to achieve this GBS I have carried on paying the monthly premiums of £334 £23 approx of which £23 relates to life insurance cover of £80000 (With this scheme if I were to die during active service my wife would have received back contributions only, so the life insurance element is very important)This type of scheme (I was assured on inception) would give a better return than the alternative scheme where you got back part of the investment on death in service!I have just received my "wake up" notification and have discovered that I will have to carry on paying the premium, minus the insurance element, until Feb 2009 !This is because the new scheme year starts in February 2008 and although my retirement is in May 08 on my 60th birthday, scheme rules apparently say that members have to complete the scheme year.This would mean my paying about another £3000 !However if I were to make the scheme paid up now the GBS would be reduced by just £1000.I am therefore tempted to make the scheme fully paid up to avoid this 2008/2009 premium penalty because seemingly I will be at least £2000 better off (not to mention being monthly premium free until may 08)One drawback of this would be that I would lose the life cover of £80000 for the remaining months to my 60th birthday which would seriously compromise my wifes financial position if I were to die during the interim period.However a way round this I suppose would be to reduce the monthly premium to the minimum allowed and keep the insurance element going.Alternatively I could make the scheme fully paid up and hunt around for short term life insurance (ie. 5 months £80000 cover)The Pension Co tell me that making it fully paid up will, as I mentioned earlier,only slightly reduce the GBS and of course in turn lower the annuity figure (because the guaranteed rate of £86.50 per £1000 will be based on the reduced sum) but they say that making it paid up will not effect anything else, which apparently includes the Terminal BonusFootnote ..I've just been told by phone that there will be no Terminal Bonus although apparently policies which commenced 2 years earlier (in 1983) will get between 20 and 30 % Terminal Bonus !I don't mind admitting that I am fairly nervous about all of this..it seems crazy having continued paying the premiums for this long to consider stopping now and of course under normal circumstances I wouldn't dream of doing so.Does anyone have any comments or advice that they would kindly like to makeAll contributions would be most gratefully received

EdInvestor

I would be EXTREMELY cautious of making any changes to this pension without taking full regulated advice, so you have a comeback if anything goes wrong.

These zombie companies are just waiting to pounce on anyone who does anything to invalidate their guarantees.

dunstonh

Being as the scheme incorporates a Guaranteed Basic Sum and a Guaranteed Annuity Rate

Explains the bonuses as both of these can be highly beneficial to you and worth a lot more than the bonuses paid.

if I were to die during active service my wife would have received back contributions only

Dont assume that it still the case. Many insurers have altered the terms on death benefits to match personal pensions or the original section 226 rules whichever pays the higher.

Does anyone have any comments or advice that they would kindly like to makeAll contributions would be most gratefully received

You cannot get advice from the boards. If we did we would breach FSA rules. You need advice as you appear to be making some assumptions which may not be the case any more.

The guarantees may not be as limited as you think but they could be. You are best doing nothing and getting an IFA to look at it due to consumer protection you get when an IFA gives advice.

MORTEA_2

EdInvestor wrote: »

I would be EXTREMELY cautious of making any changes to this pension without taking full regulated advice, so you have a comeback if anything goes wrong.

These zombie companies are just waiting to pounce on anyone who does anything to invalidate their guarantees.

Thank you very much for taking the trouble to reply and as I am an exceptionally cautious person I can fully understand the point you make, and that's why I wanted to run this problem through the forum.However,surely if I were to get the Pension Co to confirm to me IN WRITING that making the plan fully paid up at this late stage, or substantionally reducing the premium and keeping the insurance element going WILL NOT INVALIDATE THEIR GUARANTEES or HAVE ANY OTHER ADVERSE EFFECTS ON THE POLICY this would cover me if I were to choose either options.I was hoping that as this plan incorporates a Guaranteed Annuity based on a GBS and bonuses that there would be no need to engage an IFA...ie. there's no real need to shop around.Am I being naive in my assumption that a letter of confirmation from the Pension Co would suffice ?

EdInvestor

Sorry, you need an IFA who is covered by insurance to pay you compensation if his advice is wrong and you lose out.

You would be mad to DIY in these circumstances.

MORTEA_2

dunstonh wrote: »

Explains the bonuses as both of these can be highly beneficial to you and worth a lot more than the bonuses paid.



Dont assume that it still the case. Many insurers have altered the terms on death benefits to match personal pensions or the original section 226 rules whichever pays the higher.



You cannot get advice from the boards. If we did we would breach FSA rules. You need advice as you appear to be making some assumptions which may not be the case any more.

The guarantees may not be as limited as you think but they could be. You are best doing nothing and getting an IFA to look at it due to consumer protection you get when an IFA gives advice.

Thank you very much ...I really appreciate your comments and your time.This has always been my philosophy..play safe..best to do nothing (unless you really know what you're doing!).In fact this is one of the main reasons I've carried on paying the monthly premiums over the latter 7 years or so when the scheme itself appeared to be dorment.Therefore I appreciate that it would be inconsistent to either make the scheme fully paid up with only 5 months to go or drastically reduce the premium mainly to keep the insurance element intact, but the Pension Co have agreed with me over the phone that I will be at least £2000 better off if I make the plan fully paid up now.(due largely to what I can only imagine is an anomaly in the plan)...please refer to my previous posting for details.If I were to get the Pension Co to confirm IN WRITING that if I were to take either action,neither actions would invalidate their guarantees or compromise the scheme in any way (other than reducing the GBS by £1000 of course)that this would be sufficient ?...please correct me if I'm wrong (and I frequently am !) but surely that is largely all a Financial Advisor would do ?As this scheme appears to have severely underperformed I really do want to restrict my outgoings as much as possible.

dunstonh

The IFA would obtain the information and make the recommendation. It would also be the responsibility of the IFA to make sure the information is correct and that the best options have been presented to you.

A letter from the insurance company is no guarantee of accuracy and many insurance companies would refer you back to the policy document or repeat the policy wording or tell you to get advice from an IFA if they think you are asking questions which could be considered advice or opinion.

Also, dont assume the benefits are worth keeping even if they have guarantees. In the last few weeks I have recommended a transfer out of a pension with guaranteed basic annuity as the critical yield on the alternatives was just 4.5%. In other words, if the alternatives grew by more than 4.5% the alternative would be better. These are the sort of things that get reviewed and advised on. Other times you find the guarnatee annuity rates are only paid out on a limited basis. Annually in arrears with no guarantee period is a common on. In that case, the guarantee is usually useless as the payment method is not suitable.

As this scheme appears to have severely underperformed I really do want to restrict my outgoings as much as possible.

Is it underperforming in your eyes because the guarnatees are very good or is it because its a zombie fund? What is the critical yield required by an alternative modern pension to beat the guarantees of this old scheme?

These are the things that need to be considered. If you can work them out and get the information for yourself then you dont need an IFA. If you cannot then the consumer protection you get from proper quality advice (and I am not talking some tied insurance rep style advice here) is the best option for you.