Pearl Pension - What to do

Simmo

OK this is my first post so please bare with me.

I have been checking my general finances and am now studying my pension. I took out my pension on 5/2/98 when I started working and have paid in £30 a month since. With an optimistic retirement age of 50. After reading some old threads regarding Pearl on this site,I thought I should check my pension projections. Now I realise I need help

My statements:

2003 2004

Value of account £2409.69 £2906.94
Est. retirement fund value £18900 £13600
Est. pension per annum £639 £460
Bonuses to date £164.49 £196.14



Obviously something is going wrong. My last statement queried whether or not I have an occupational pension scheme, and if I did too join it. My company does offer this scheme but I don’t know the details as yet.

Can someone recommend what my next step should be? I have a mortgage for 64000 outstanding, would I be better paying this off early? (Halifax 2 year discount tracker (currently 4.65 I think). Invest in Isas? Use the maximum Child Trust Fund allowance. I was planning to up my pension to approx £80 a month. Any advice would be appreciated before I waste my money :eek:

Pal

How old are you?

Presumably they have changed the investment assumption that they used to project the figures, which is why your fund value has gone up but the estimated fund at retirement has fallen.

You can forget retiring at 50 because the rules are changing so that 55 is the minimum age. Even so, the amounts you are paying are so small that you would never have been able to afford that anyway. Even £80 a month would not have been enough for that.

Ask for a projection for retirement at 65 based on paying £80 a month. Depending on how many years you have to go to retirement the fund value and pension projection might start to look more reasonable.

Paying your mortgage off early might be sensible if your fund grows more slowly than your mortgage interest rate, but it is not going to help you retire early either as it will not provide you with an income.

dunstonh

Pearl have a range of pensions and not just one. These are often referred to by version numbers. After 1988, those beginning with 09 are V1s and are the worst. Later on V2s were introduced december 1997 and start 05. V3s were introduced a little later with V4s introduced towards the end of Pearl being open for new business. (both V3 an V4 started with 05. Sometimes 03 was used on V2 plans)

A 1998 plan is likely to be a V2 plan. If so, this will have an annual management charge of 1.35%. The current bonus rate is 1.1% on the amount you have paid in and 2.2% on bonuses already added. i.e. If you have paid £2500 in, you will get 1.1% on that. If pearl have added £200 of bonuses, then 2.2% is added to that £200. However, the annual charge is taken after bonuses added. So, the vast amount of the fund value is being given 1.1% with one hand and taking back 1.35% with the other.

Pearl have lowered their projection rates in recent years. 5,7, & 9% (industry standard rates) used to be used on the pension. Currently 4,5 & 6% is used on the V2s to comply with FSA rule 6.6.38 (not to use rates which the investment fund is unlikely to achieve). Looking at the history of V2 bonus rates, the highest has been 4.48% (minus 1.35 = 3.13%). Pearl have stated that future bonuses will be lower than those paid in the past. They have recently started to increase the equity content of their with profits fund but its too late for the short term and they have confirmed that it will only be of benefit in the long term.

My opinion is that the Pearl projections are pretty useless. There is no point looking at the 5% figure, for example, when it has little potential of hitting that figure. Being prudent, you should probably look at 0% return if you continue with Pearl.

Switching to another provider is an option you to consider/investigate. A proper analysis can be done then. You also mention an employer pension. This should be investigated as the employer scheme may include contributions or benefits which are very attractive.

Also, as Pal says, £30 is only really any good for an 18 year old and even then it should be increased with inflation annually. Even if you use Pearl's projections of £13,600. That will only produce around £680 a year at retirement. Nowhere near enough for the average person to retire on at any age.

I do have clarify Pal on something and that is that Pearl will not issue a projection with £80pm as they closed for new business a few years ago and you cannot start or increase any policies with them. If you decide to pay extra, you will need a new provider.

EdInvestor

I assume Simmo will be hit by an MVR penalty if he tries to transfer out the Pearl pension?

dunstonh

Pearl do not charge an MVR. It used to be a selling point on their pensions but now its the reason why their bonus rates have all but gone and what makes them easy to justify transferring

Simmo

OK so if I cant change my payments with Pearl, what would be recommended for me to transfer too, so I can increase my payments and get a better return.
I am 26 this week. I will be looking at saving possibly 80-100 to the age of 65 at the moment. These payments will probably increase after my mortgage has gone.

On my 2004 statement the transfer value was 2635 and total value 2906

EdInvestor

Simmo wrote:

On my 2004 statement the transfer value was 2635 and total value 2906

That does appear to be a 9.3% transfer penalty whatever they want to call it

Going back to Simmo's original query:

My last statement queried whether or not I have an occupational pension scheme, and if I did too join it. My company does offer this scheme but I don’t know the details as yet.

I would suggest that step one is to investigate what type of scheme this is and whether or not it attracts an employer contribution.Even if it doesn't, if it is a "Group personal or stakeholder pension scheme" and the company has negotiated low charges, it may be sensible for you to transfer your Pearl pension scheme into it and pay your contributions into the company scheme.

So check that out first and come back here with some details,I suggest.

Then we can consider the other ideas.