What to do with £100/month?

frogeyesimon

I'm 45 years old and have been paying in to a Zurich pension fund for the past 20 years, fund is at approx £100k, I also have £50k or so in protected rights pot (I've just opted back in to S2P). I'm currently paying about £350/month in to Zurich and now wish to put an extra £100/month (before 40% tax relief) aside. My IFA has advised me to leave my Zurich pension where it is due to transfer penalties and because I get tax relief on the associated life insurance and waiver of contribution benefits and because the upfront charges have mostly been taken. So where should I put the £100/month - in the Zurich pot, in some other pension pot or into ISAs?

Retired_I.F.A.

Being a 40% tax payer and possibly a lower rate one once retired It's a pension plan rather than an ISA and by from what I see now a more modern lower charging pension is most likely a better choice than increasing contributions to an old one with higher charges.

dunstonh

Zurich pensions (expecially ex dunbar ones) tend to have access to an average unit linked fund range and do suffer higher transfer penalties.

Leaving it where it is and redirecting the regular plus top up to a new plan makes perfect sense.

bigbloke45

Has your Zurich pension plan got capital units? How much is the associated life assurance? because tax relief on an expensive plan may be worse than modern term assurance without tax relief (Zurich were never cheap!). Also what is the waiver benefit? is it 6 months or a year deferred? Once again, is it really worth the paper it's printed on?

Finally, a great bugbear of mine! Capital Units DON'T exist; it's a sophisticated con invented to hide the fact that a large percentage of your first two year's contributions were never invested in the first place. This means that any "exit" charges are not real either, you never had the money invested in the first place so, making a transfer is not going to hurt you. Concentrate on what is avalable today, the past is gone forever.

I can show you the maths of the "capital units" con if you would llike.

Good luck with your endeavours but remember that most IFA's don't understand capital units!

Retired_I.F.A.

remember that most IFA's don't understand capital units!

Correction: Its the public that never understood capital/initial units It's through the campaigning of IFA.'s that they were done away with.

frogeyesimon

Thanks for your contributions.
Waiver of contibution - 6 months. Life insurance element is £45 ish/month (gross) for £220k cover. I think I understand the capital/accumulation units setup. From the advice that I have had I think that I will steer away from any additional contributions to Zurich. Have yet to decide whether I'd prefer the flexibilty of ISA's vs the tax relief benefits of another PP.

purch

Finally, a great bugbear of mine! Capital Units DON'T exist; it's a sophisticated con invented to hide the fact that a large percentage of your first two year's contributions were never invested in the first place. This means that any "exit" charges are not real either, you never had the money invested in the first place so, making a transfer is not going to hurt you. Concentrate on what is avalable today, the past is gone forever

I was was caught in this trap, with a FSAVC plan with Allied Dunbar, where the illusion of a Fund value £20k larger than transfer value kept me tied in for many more years that I should have............it was the help of posters on this forum including bb45 who helped me understand the 'smoke and mirrors trickery' and finally move the money.

frogeyesimon

Hm... more pondering needed I think !!! - from the keyboard of my IFA:-
>>
I have compared returns on your current plan with those if you were to switch to a new stakeholder plan, and despite the overall charges on the Zurich plan being higher than the current stakeholder charged contracts, because the Zurich charges have been taken up front and because of the penalties levied on transfer by Zurich, the projected fund at age 60 is higher for your existing plan than for a new stakeholder contract.
<<

dunstonh

That is quite normal with Zurich plans (especially old Allied Dunbar ones).

The IFA seems to be doing everything expected so that should give you confidence in the advice. Zurich provide projections and you compare these to modern alternatives using the transfer value and use the same projection rate. The one with the highest figure is the cheapest.

That is one part of it. The other is investment potential. Zurich offer a range of internal funds so they are largely comparable with any stakeholder so unless the Zurich pension comes out more expensive, there is no point moving it if the plan is to stick with a stakeholder.

If you are more adventurous in your investing, you may want India, China, Emerging countries, commodities, property, agriculture etc which you cannot get with Zurich. So, you may chose to accept the costs of moving out to get better investment potential. However, that is a judgement call that only time will tell is right.

Another thing is how likely are you to retire at 60. Most people cannot afford to retire at 60 so is using projections to 60 realistic or not? It may be that going to 65 (or upto 68 if you are in your 20s, 67 in your 30s, 66 in your 40s to match the higher state retirement age that will be in force then) could change the balance of charges between the two.

bigbloke45

frogeyesimon wrote: »

Hm... more pondering needed I think !!! - from the keyboard of my IFA:-
>>
I have compared returns on your current plan with those if you were to switch to a new stakeholder plan, and despite the overall charges on the Zurich plan being higher than the current stakeholder charged contracts, because the Zurich charges have been taken up front and because of the penalties levied on transfer by Zurich, the projected fund at age 60 is higher for your existing plan than for a new stakeholder contract.
<<

Wow! Did this bloke used to be a Hambro Life/Allied Dunbar [EMAIL="saleman?&#64;a"]salesman?[/EMAIL]
I don't think he knows what he's talking about. It looks like he's just copied a wording from Zurich Life!

He's just told you that Zurich have taken the charges up front and now he's telling you there are more transfer penalties. What a load of tosh! The charges have already been taken; what's gone is gone. What has a projected fund got to do with anything? Nothing!

Get some advice and make a decision quickly!

Best of luck. If you would like, I can show you how capital units work; I think your IFA ought to have a few lessons as well!

bigbloke45

purch wrote: »

I was was caught in this trap, with a FSAVC plan with Allied Dunbar, where the illusion of a Fund value £20k larger than transfer value kept me tied in for many more years that I should have............it was the help of posters on this forum including bb45 who helped me understand the 'smoke and mirrors trickery' and finally move the money.

purch, I'm glad to have done you the favour.

It's becoming very obvious to me that amateur investors need to get together to fight back against the sophisticated "rogues" who have designed these products in the first place; they are not the salesmen, who mostly don't understand what they have/are selling, it's the insurance company actuaries who have come up with more and more subtle ways of extracting charges at the behest of their marketing managers.

But, I think there has been a sea change with modern pensions which are more honestly priced. However, you need to look very closely at what charges are coming out of your fund BEFORE the fund management charge is applied. But then, if I go to Tesco's I've still got to pay them all!

Always remember we are talking about "Retail" funds, so we must expect the charges to meet costs and make a profit for the provider. Othewise, we wouldn't have the choice.

Happy hunting!