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Moving a with-profits pension – is it safe?

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If you are in your 50’s or 60’s, planning for retirement and have a with-profits pension, then we recommend digging out the paperwork and seeking financial advice to see if it is still meeting your objectives, as many such plans are now providing disappointing returns.

What is a ‘with-profits’ investment?

Generally these are medium- to long-term investments, sold in the form of a mortgage repayment vehicle (endowment), or pension, investment bond or annuity. The aim of this type of plan is to provide a steady return without the dramatic ups and downs associated with the stock market. They are managed by insurance companies, with your money being invested into different types of investments such as shares, property, bonds and cash. Investors get their share of the returns through the accumulation of ‘annual bonuses’.

The size of the bonus is determined by the insurer and depends primarily on the success of their investments. In good years, bonuses are held back a little to ensure bonuses can be paid in more difficult years, in a process called ‘smoothing’. Some plans also come with a terminal or final bonus.

Unfortunately over time the financial world has changed, and additional regulations and poor stock market returns have been undermining ‘with-profits’. This has led to most plans now paying a minimal annual bonus, if anything at all, meaning they are poor value for money.

What are the problems?

In our experience, many investors do not fully understand how their ‘with-profits’ plans work. As an example, people often think the terminal bonus is guaranteed when it is not-it can be reduced or withdrawn without notice.

Unclear charges and crushing exit penalties (know as a market value reduction) for those who try to get their money out of a plan early are two further problems. Unfortunately, it is nearly impossible to value your assets and there is no way of detecting the underlying charges, leaving all the advantages with the fund managers, not you, the investor.

What to do with your policy?

Making a decision on your own-i.e. whether to stick or twist-is unwise. Withdrawing money without advice could mean the loss of a valuable bonus or guarantee, or a shock exit penalty. You could also be missing an opportunity to withdraw money from a badly performing plan and invest it elsewhere. However, not all with-profits plans are the same, so if you hold one it is worth you having it reviewed by a financial expert.

Saved from a costly mistake

We recently helped a client with an old with-profits pension who was keen to transfer its value to his current pension pot for the sake of simplicity. The pot was worth approx. £115,000 but transferring it at the wrong time would have triggered an exit penalty of circa £7,000, and potentially reduced the terminal bonus. Sometimes professional advice is priceless, even if it is to ‘sit tight’-as going ahead at the wrong time could be a costly mistake.


To discuss moving a with-profits pension contact Peter Jarvis at Myers Asset Management on 01782 557233 or email at peter@asset-manager.co.uk.

Myers Asset Management is an Appointed Representative of PHM Wealth Management Services LLP which is authorised and regulated by the Financial Conduct Authority.  PHM Wealth Management Services is entered in the FCA Register under number 579336 which can be found at www.register.fca.org.uk

PHM Wealth Management and Myers Asset Management are registered in England & Wales, the respective registration numbers are OC372382 and 04345900.  Both have the registered office address of Charlotte House, 536 Etruria Road, Basford, Newcastle-under-Lyme, Staffordshire ST5 0SX.


This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.


Guide to safeguarding your financial security

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