Norwich Union With-Profits Stakeholder

runciblespoon

A friend has asked me to have a look at his pension arrangements. I'm a bit of a pensions novice myself since I'm taking the S&S ISA route at the moment, so feel free to direct me to what to read or tell me what to Google


He has a company Stakeholder pension from Norwich Union, invested in the Series 3 range of funds in the Stakeholder With-Profits fund.

He's 29, and took out the pension in August last year when he was earning £15K. His employer pays £138pm while he currently makes no contribution. He's wondering whether to make contributions himself now his income has gone up to £18K. His retirement date on the paperwork is set at 60.

In terms of charges, he's paying £335 over 12 months for 'advice' (AFAIK there wasn't very much of it), and the only ongoing charge is the annual management charge of 0.7%.


I don't think he wants a particularly hands-on approach for the moment (otherwise I'd suggest SIPP or similar). I'm a bit confused about opinions on the stakeholder options by reading this forum... from what I've read NU isn't a bad provider. I know there have been poor performance with With-Profits policies in the past - is this one any good? If it isn't are NU's other plans any better, and is it feasible to transfer without being stung by penalties? Are there other providers it'd be worth looking at? I don't quite know how company pensions work - if he transferred to another provider would that complicate things at his employer?

Also, the With-Profits fund is risk low-to-medium. Shouldn't someone with 30 years to retirement be aiming towards a medium/high risk (suitably diversified)? There are only 30-odd funds available, so is it worth just picking a sensible mixture (there's typically only one or two in each sector)? NU don't seem to give any performance data on their website in the same way that unit trusts do - or is it hidden somewhere?

Given he's lost about 2.5 months' contributions in fees the pot isn't that big. In view of potential exit charges for the With-Profits fund, would it be better to leave this one and start again, either at NU or elsewhere?

Thanks!

dunstonh

In terms of charges, he's paying £335 over 12 months for 'advice' (AFAIK there wasn't very much of it), and the only ongoing charge is the annual management charge of 0.7%.

Considering the annual management charge is 0.7% the fees are just 0.1% from being the minimum (NU minmum before fund based discount is 0.6%).

don't think he wants a particularly hands-on approach for the moment (otherwise I'd suggest SIPP or similar).

A SIPP or any other pension would be a complete waste of money. Its a no brainer to keep the NU pension.

from what I've read NU isn't a bad provider.

Correct. One of the most financially secure providers and a good fund range available.

I know there have been poor performance with With-Profits policies in the past - is this one any good?

NU and Pru are probably the only real viable with profits providers left. I still have clients in the NU WP fund who have been getting returns in excess of 10% a year. Sometimes I wish I used it more than I did but there is always the guilt that it appears like you are not doing enough to justify your work.

If it isn't are NU's other plans any better

Dont mix up the pension plan and the funds available. They are two different things. The with profits fund is one of a number of funds available. You dont change the pension if you want to have different funds (that NU have available).

Are there other providers it'd be worth looking at?

No.

if he transferred to another provider would that complicate things at his employer?

Yes. He would lose the employer contribution. Most employers allow you to use their pension but if you want your own they wont pay into it. Some will but that tends to be the smaller employers and not the medium to larger employers.

Also, the With-Profits fund is risk low-to-medium.

Not really. Its medium risk.

Shouldn't someone with 30 years to retirement be aiming towards a medium/high risk (suitably diversified)?

Possibly. Risk is reduced over time but you have to consider if the individual is happy losing up to half their pension in a 12 month period (which is medium/high risk territory) even if it means that they may make more in the long run. Many people cannot accept large short term losses and dont understand the long term principle.

NU don't seem to give any performance data on their website in the same way that unit trusts do - or is it hidden somewhere?

Its on their website and all the usual 3rd party data suppliers (e.g trustnet) publish the data.

Given he's lost about 2.5 months' contributions in fees the pot isn't that big. In view of potential exit charges for the With-Profits fund, would it be better to leave this one and start again, either at NU or elsewhere?

He hasnt paid that amount of charges. You are misreading it. Hes probably paid around £25 in charges.

EdInvestor

It would not be sensible to move to another pension, but it would be better to redesign which funds the monthly contribution is paid into, dividing the money between say four funds in total. Don't put it all in the WP fund. I would agree that typically for his age he would be advised to go for higher risk ( UK and foreign equities, commodities etc) funds.

runciblespoon

Thanks, both of you, for your input.

dunstonh wrote: »

Considering the annual management charge is 0.7% the fees are just 0.1% from being the minimum (NU minmum before fund based discount is 0.6%).

I did think those charges looked reasonable, compared to Unit Trusts.

A SIPP or any other pension would be a complete waste of money. Its a no brainer to keep the NU pension.

Fair enough. I'm no doubt showing my ignorance here

NU and Pru are probably the only real viable with profits providers left. I still have clients in the NU WP fund who have been getting returns in excess of 10% a year. Sometimes I wish I used it more than I did but there is always the guilt that it appears like you are not doing enough to justify your work.

I'm puzzled - do you have a link to fund data? There are 5 NU WP funds I can find on Trustnet's pension funds section, the longest serving (NU With Profits Gtd CU) one has a growth of 12.5% over 3 years. It's beating the sector, but is that really much better than cash?

Not really. Its medium risk.

Low-to-medium is what NU say it is, but I take your point that things are typically higher risk than they appear.

Possibly. Risk is reduced over time but you have to consider if the individual is happy losing up to half their pension in a 12 month period (which is medium/high risk territory) even if it means that they may make more in the long run. Many people cannot accept large short term losses and dont understand the long term principle.

Fair point. But I'd have thought a something that's locked away for 30 years is exactly the place one should be taking risks (but, I suppose, not too many otherwise there'll be no cash left to recover with )

He hasnt paid that amount of charges. You are misreading it. Hes probably paid around £25 in charges.

I'm confused. The letter says:
How much will the advice cost?
For arranging your plan, we'll pay commission to <Adviser name>. The amount we pay depends on the size of the contributions and the length of your plan term.

It will be paid for out of the charges.

We'll pay £335 in total within 12 months from the start of your plan. This is based on the contributions shown in this illustration.


But if they're paid from the AMC as it suggests, on the £138pm in the illustration, even if they get the full 0.7% of the year's contributions that's £11.59. If that's the case the adviser would be waiting 28 years to get his full £335. But the adviser might well be in his grave at the end of 30 years, so won't some of the payments be up front?

Thanks again for your help...

dunstonh

I'm puzzled - do you have a link to fund data? There are 5 NU WP funds I can find on Trustnet's pension funds section, the longest serving (NU With Profits Gtd CU) one has a growth of 12.5% over 3 years. It's beating the sector, but is that really much better than cash?

It should be listed as its the unitised with profits fund (probably S2 or S3 although it may be S1 depending on the scheme).

Its not a bad option but long term I would prefer the more typical unit linked funds.

Low-to-medium is what NU say it is, but I take your point that things are typically higher risk than they appear.

As an IFA, we dont use provider's risk profiles. They are often not in sync with each other and they will have different views. Typically, a with profits fund which can levy an MVR is medium risk and one that cannot levy an MVR is cautious. However, you also have the equity content to throw in to the mix as well.

But I'd have thought a something that's locked away for 30 years is exactly the place one should be taking risks (but, I suppose, not too many otherwise there'll be no cash left to recover with )

You are right and you understand that. However, there are a lot of people that dont. I had someone phone me some months back after getting their statement giving me a rant that their value had gone down £170 over the last year and that was on a 30k fund (and after she had been risk profiled and had ticked the box to say that upto 20% was an acceptable loss in the short term). Some people struggle with understanding the way things go and up down and for those people you have to look more cautious even if you believe medium or medium/high is better.

I'm confused. The letter says:
How much will the advice cost?
For arranging your plan, we'll pay commission to <Adviser name>. The amount we pay depends on the size of the contributions and the length of your plan term.

It will be paid for out of the charges.

We'll pay £335 in total within 12 months from the start of your plan. This is based on the contributions shown in this illustration.

Commission is not paid by the policyholder. Fees are paid by the policyholder. Commission is paid by the provider and they recover it out of the fees. With pensions it can often take providers 10 or 15 years to recover the commission that has been paid.

The FSA historically has had a fascination with commissions which is why they are disclosed. However, the focus should be on charges as that is what the consumer pays. Lower commission does not mean lower fees. It would be like buying a washing machine and ignoring the price you pay but looking at the profit margin the retailer makes. In reality you dont care what the retailer is making. You care about what you are paying.

Retired_I.F.A.

Just a precautionary footnote, dont advise your mate as you'd be breaking the law, best to print off this thread and show it to him. (it's a discussion not advice)

EdInvestor

Retired_I.F.A. wrote: »

Just a precautionary footnote, dont advise your mate as you'd be breaking the law

Don't be silly.There's no law against people giving advice - information and opinions- to their friends about financial issues.Of course there's also no comeback if the advice is rubbish.

Regulated "financial advice" is something very specific, a different category entirely.

Retired_I.F.A.

If your not authorised by law to give financial advice your breaking it. Plain and simple.

dunstonh

It's a grey area. Technically RIFA is correct. Advising someone on regulated areas of financial advice is a breach of law. However, no-one has ever been prosecuted for it unless they were doing it and being paid or making a financial gain out of it. It would be virtually impossible to prosecute someone for "chat down the pub".

That said, I have heard the "friend told me to do this" many times before and the "advice" from the friend was awful. So you do have to be careful as you can spoil friendships if you are wrong.

Another common area where "advice" can be bad is workplace myths about benefits and pensions. I have heard the often said "We have a great pension" and a "we have a rubbish pension" a number of times and they have been wrong. Sickness benefits and death in service are often misunderstood as well. These myths get about because workers tell each other and they become gospel over time.

EdInvestor

dunstonh wrote: »

No-one has ever been prosecuted for it unless they were doing it and being paid or making a financial gain out of it.

That's the key point. Free advice/opinion/information is not regulated.

dunstonh

EdInvestor wrote: »

That's the key point. Free advice/opinion/information is not regulated.

Free advice is regulated. Its just impossible to prove and no-one has put it to the test.

Opinion and discussion is not. Information is regulated as well to a point. Commercial entities, even if not authorised can still be prosecuted. Individuals has never been tested.