Pearl - transfer or stay? (one for DD?)

Fleagle

I have a Pearl v1 with-profits pension that was paid up 3 years ago. Fund value is currently about £19250, transfer value £14250.

I have paid into a seperate group stakeholder for several years and am seriously considering transfering. I stand to lose £5000 but as a bottom line percentage this is the lowest penalty for three years (about 26pc vs 40pc last year and 33pc two years ago). Obviously there's no way of knowing what penalties will be applied in the future, but as strange as it seems 26pc is quite attractive given their past offerings.

I'm a 33 year old male. Would appreciate any opinions or suggestions. I have run this past my IFA and he can't recommend transfering based on standard calculations but I think Pearl might be a different kettle of fish.

Thanks, Dave

ReportInvestor

What are the charges on the Pearl pension? Is it true that you have had no bonuses for four years?

Last year there was a guy who paid into a Pearl pension for 14 years and the transfer value was only 3/4 of his total contributions :eek: .

dunstonh

Ahh, this is an easy one for me.

I have personally arranged the transfer of over 300 pearl pensions in the last 18 months and know their pension product range inside out. I have yet to find a V1 pension where I havent recommended transfer (some of their RACs (pre 1988) are worth keeping though). IFAs not fully aware of the Pearl product may not appreciate the product workings and find it hard to justify what appears to be massive exit fees. However, a close look at the figures can make the exit penalties look small compared to what you can get back. The highest penalty I can recall was just over £20,000. However, the comparative projections were over £80,000 better with the alternative, even with the penatly taken into account. Scary figures both ways really.

Please do not take this as advice. The fact it is similar to what I present when giving advice is irrelevent. In those cases, I have written confirmation of the product and I have ascertained information to support my recommendations. I have neither of those in here.

The following section is fact and not opinion (so no need to crop it Pal)

The V1 prosperiety plan is a peculiar beast in the way it adds bonuses. Its not quite a conventional with profits plan but it is closest to that. Pearl include the terminal bonus in their current value with the assumption that is is held until age 60 at the earliest. If you retire earlier than that or transfer out, they claw a chunk of that bonus back. They can also claw chunks of it back based on performance of the underlying fund. That actually happened this year with paid up V1 plans having lower values than last year.

Now onto figures...

In 1993, Pearl bonus rate was 7.5%. It dropped progressively over the years to zero bonus for 2002 and and has been zero every since. The interim 2005 rate is zero. The average rate of return, before charges, over the last 10 years is 3.1% per annum.

If you are still contributing to the plan, it gets worse. They have policy fees which increase annually. They were £2.95pm in 1994 and are £4.83pm currently. Paid up plans do not get those fees taken any more.

Now on to things you need to check:

You have the current and transfer values which is great. However, you need the projections to retirement assuming no more contributions. This is very important. The contributions you are paying (assuming you still are) can mask the effect of charges. If you are not paying anything more in, you get to see what they project from the current value without regular contributions bumping it up. The main reason for this is that on about half the V1s, you will find the Pearl projection at age 65 is lower than the current value and often lower than the transfer value. And that assumes a growth rate of 5% calculated on SMPI basis. Remember the Pearl average over the last 10 years is 3.1% and the last time they paid over 5% bonus rate was 1998 (before the stockmarket crash and when things were still good).

So, if you have the projection figures, post them. If not ask Pearl to supply you with projections assuming no more contributions.

Now with projections its important to note the following:

SMPI uses an intermediate growth rate of 7%pa and an inflation rate of 2.5% to give you a "real terms" potential value. The FSA state (in COB 6.6.38) that a projection of a surrender or transfer value must be given using the intermediate rate of return appropriate to its category of business, unless the firm reasonably expects the rate to overstate the potential of the contract, in which case a lower rate of return must be used and disclosed. Pearl have used a lower rate of 5% in their forecast.

Now onto to opinions (and not advice).

Pearl are likely to remain on zero bonus or minimal at best for the foreseeable future as the NPI fund is re-assured into the Pearl with Profits fund and Pearl Policyholders are paying for NPIs shortcomings. In additon, the asset mix of the Pearl with profits fund is low risk and therefore low return. They pulled out at the worst time and Pearl now invest to meet solvency requirements rather than pay returns on policies.

Pearl Policyholders are leaving the sinking ship and there is no new business to replace it. Last time I checked, I had transferred over £7million out of Pearl and I currently have just over £1million (of transfer values) being transacted at this time. I am just one IFA. OK, I am pro-active on the Pearl front (as I have a number of introducers who are ex Pearl) but I know other IFAs who have ex pearl staff doing the same.

The Pearl projection, when you look at it, is likely to be awful. They tend to hit non-protected rights harder than protected rights. By that I mean that I have never seen a projection where the protected rights chunk has gone down but most of the non-protected rights chunks have.

SMPI projections are done at 7% minus 2.5% for inflation. Some IFAs will not know how to get SMPI projections to compare against Pearl and some may not even know what an SMPI projection is (I have had other IFAs contact me about Pearl transfers as they have been referred by insurance company reps to IFAs to come to me as an "expert" on Pearl. I have had to explain SMPI to a few!!!). Anyway, back to SMPI. Pearl use 5% with 2.5% deduction for inflation in accordance with FSA rules. IFAs are allowed to use 7% SMPI to compare against 5% SMPI if the portfolio has potential to achieve 7% or higher. If you compare 5% against 5% the Pearl will probably appear slightly better on charges over the term. An IFA may consider that enough for them to not advise the transfer.

How I do it.

I do a transfer analysis using 7% SMPI against Pearl's figures. There is no other way to sensibly do it. Pearl are unlikely to achieve 5% again and are likely to remain at zero or minimal at best. So its not a real world comparison anyway. The 5% and 7% is a 2% difference but lets say the alternative comes in at 5% and Pearl comes in at 1%, thats a 4% difference.

As for the penalty, you need to put it into perspective. I refer back to that over case where the current value was 50k and the transfer value 30k. The pearl projections at 5% were 28k at retirement. Thats a 22k drop leaving it where it is if Pearl make 5%. By transferring it out, its value is 30k with the potential to growth. At 7% that went over 100k. Which would you rather do?


I apologise if there any gaps in this rather long post as I got interuppted a few times. I also apologise if its a bit long winded. However, from this, I hope you can get my where i am coming from. If you can post your paid up projections figures, that would help.

EdInvestor

Hello DH

As a Pearl afficionado, you may find the following ongoing archive interesting:

The demise of AMP-Pearl

I think it's probably the best collection of web-based information for reference on this subject, which in many ways resonates a lot more strongly in Australia than it does in the UK.
Perhaps it will come in useful some time

Fleagle

dunstonh wrote:

I apologise if there any gaps in this rather long post as I got interuppted a few times. I also apologise if its a bit long winded. However, from this, I hope you can get my where i am coming from. If you can post your paid up projections figures, that would help.

You, my man, are a true gent :T. Thanks for a very interesting and informative reply.

I will call Pearl on Monday to request projection figures. However, from my last statement they estimate at age 65 a non-protected fund value of £4700 and a protected fund value of £9400. Figures, as you stated they would be, are in todays prices with 5pc ROI and inflation at 2.5pc PA. I don't know if these values are the projections.

The fund is paid-up. At the moment my transfer value is greater than my total contributions so at least I've made something from this (about £5000 over 14 years so much less once inflation is taken into account). It's little compensation, but I can see that I'm better off than some Pearl policyholders.

Thanks again, Dave

dunstonh

They sound like the figures and as you say, its already paid up.

So, your fund value is £19250. If you wait until retirement and Pearl grows at 5% you will end up with £14100 in real terms. If you transfer out now, you start at 14,250 and then get growth on top of that. Modern plan charges are much lower and even if you used SMPI at 5% - 2.5% and chose a pension with a 1% reduction in yield (for charges), you would still have 1.5% positive growth. This would indicate that the alternatives would provide a higher figure on like for like growth.

In reality, Pearl are unlikely to ever hit 5% so their figure is going to be worse and long term average (subject to fund selection) on the alternatives is likely to be better.

Conrad

Fleagle wrote:

I will call Pearl on Monday to request projection figures. Thanks again, Dave

Fleagle, if u do transfer make sure you compare transfer costs. For example, Ive heard of people loosing an initial 5% deducted by the new company on day one!

Is it possible to complain to Pearl and say you might not go to the FSA if they agree to far far lower charges. In the end if u transfer elsewhere there is no magic investment wand, they all invest in the SM and cash. In other words even if u transfer the future returns might be poor. I saw that 70% of FTSE managed tracker funds had done worse than had you just bought a non - managed (far cheaper) tracker fund.

BTW, I used to be an IFA (now own mortgage brokers) and never believed in Pensions. Go look at the head office of a typical insurance company if you want to see where I think all your money goes. A typical pension is no - more than an insurer 'farming - out' your money to third party fund managers (thats why there are hundreds of FMs). I prefer to invest direct into FMs (Unit Trusts) using maximum ISA limits initially. That way you keep total control of your money, invest as you wish when u retire, can pass it to your next of kin, the charges are low and there arent layers of third parties having a dip.

EdInvestor

Hi Fleagle

If you don't want to pay into this pension any more, you may be best to transfer it to a low cost online SIPP with a low flat rate transfer-in charge and no annual fee.That way you will have access to the best funds with discounted initial charges and no charges ongoing, so you can quickly make up the money you've lost by getting out of Pearl.

Cheap SIPP providers include Sippdeal, EPML,Alliance Trust and Hargreaves Lansdown.You can also directly invest in shares, bonds and cash in a low cost SIPP, but if you just want to use funds/unit trusts, it's no problem.

Fleagle

Thanks for all the replies guys. TBH I was going to transfer into an existing NU group stakeholder, but there is some food for thought there.

Conrad, any idea whether complaining is likely to draw results? I'm assuming it's a case of if you don't ask you don't get.

Thanks again, Dave

dunstonh

Fleagle, if u do transfer make sure you compare transfer costs. For example, Ive heard of people loosing an initial 5% deducted by the new company on day one!

Yep, I have arranged a few over the last few years with an initial charge. Nothing wrong with that at all when the annual management charge is lower and over the term comes in with far lower charges.

Is it possible to complain to Pearl and say you might not go to the FSA if they agree to far far lower charges. In the end if u transfer elsewhere there is no magic investment wand, they all invest in the SM and cash. In other words even if u transfer the future returns might be poor. I saw that 70% of FTSE managed tracker funds had done worse than had you just bought a non - managed (far cheaper) tracker fund.

What grounds would there be for mis-sale? You wanted a pension, they gave a pension. Performance is not grounds for complaint.

I prefer to invest direct into FMs (Unit Trusts) using maximum ISA limits initially. That way you keep total control of your money, invest as you wish when u retire, can pass it to your next of kin, the charges are low and there arent layers of third parties having a dip.

With the ablity to invest in unit trusts within the pension wrapper and with pension charges generally being much lower than unit trusts/OEICs, the pension wrapper can provide very good value for money.

I don't know when you stopped being an IFA but pensions have changed a lot in the last 3-5 years. You can get every open unit trust fund on the market inside a pension if you want to.

EdInvestor

...pension charges generally being much lower than unit trusts/OEICs


Offcial figures show that even at 1%, a pension provider will take between 20 and 30% of your fund over 25 years.And now the minimum has gone up by 50%.

Whereas you can get an ISA for an annual flat rate of 25 quid.

Check the official figures on charges here, they may shock you:

https://www.fsa.gov.uk/tables