Norwich Union pays compensation for charging error

November 11, 2008 | posted by Pam Atherton in Pensions | comments (0)

People who took out low cost stakeholder pensions with Norwich Union are set to receive compensation, following the discovery of a mistake in their pricing  by the insurer.

Around 34,000 people who bought stakeholder pensions after they were introduced in April 2001 will receive an average of £300  in compensation, costing Norwich Union  £11m in total.

The insurer, which is owned by Aviva, had been charging policyholders more than the statutory 1 per cent limit on charges which was applicable in 2001. Nowadays, pension providers can charge up to 1.5 per cent a year for stakeholders.

Norwich Union discovered the mistake during a review ahead of regulatory changes and says that customers who have already retired will receive a cheque in the next few weeks.  Policyholders who have not yet retired will have their pension pots topped up to rectify the error.

Employers with five or more employees who do not offer any kind of pension scheme are required by law to provide access to a stakeholder scheme, but do not have to make contributions on behalf of their employees.

Stakeholders were introduced in 2001 as a way for low earners with no retirement savings to invest in a low-cost simple pension plan. These low cost pensions have been slated as a failure, but their introduction had the beneficial effect of subsequently driving down charges on personal pension plans.

They can also be extremely cheap. If you go to an independent financial adviser and pay a fee, you can negotiate even lower charges than 1 per cent.

I did just that and was advised to take out a Scottish Widows stakeholder pension which charges only 0.64 per cent a year. There are 30 funds to choose from, including those of three external fund managers.

Charges can have a significant effect on the final value of your pension pot and should always be taken into account when arranging a plan.

In bull markets, the effect of charges can appear less important, but in a bear market they can make all the difference between a negative and positive performance.

Find out more about stakeholder pensions:
http://www.defaqto.com/consumer/pensions/stakeholder-pensions.aspx

Try out the Defaqto annuity calculator to see how much income your fund will buy you:
 http://www.defaqto.com/consumer/pensions.aspx 
 
Want to find a pension provider?
http://www.defaqto.com/consumer/pensions/a-to-z-of-pensions.aspx

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To move, or not to move…

October 24, 2008 | posted by Pam Atherton in Uncategorized | comments (0)

Sipp providers are expecting a wall of money to hit their funds in the  months to come as thousands of investors look set to move ‘protected rights’ money from other pensions into their Sipps.

Protected rights are the funds built up when you ‘contract out’ of Serps or the State Second Pension. This has been possible since July 1988 and an estimated £100bn is invested in this way.

Protected rights funds used to be subject to various investment restrictions, but since 1 October 2008,  savers have been allowed to move the funds  into a Self Invested Personal Pension or Sipp.

Contracting out involves paying lower National Insurance Contributions and being paid a rebate by the Government to build up a separate pension pot whose purpose is to match, or exceed, the benefits paid by the state scheme.
 
Research conducted by Fidelity FundsNetwork shows that less than one in ten (9 per cent) of respondents was very happy with the performance of their protected rights pots and 29 per cent had no idea how their money had performed.

Well over a third (38 per cent) say they intend to move their protected rights money into an existing Sipp or open a new Sipp in order to do so.  Less than 8 per cent of respondents were happy to leave their protected rights money untouched.

But falling stockmarkets around the world mean that insurance companies may well introduce market value reductions (exit penalties) on with profit funds, in which many people hold their protected rights.

Given that the world economy is moving into a recession which could last several years, investors are not going to recover a 25 per cent penalty from investment growth any time soon.

Nearly  one in five respondents say they would face exit charges by their current provider and a further two in five were unsure whether they would or not, even though the research found that these charges could top 25 per cent.

So investors should be sure to seek independent financial advice to check whether the investment freedom offered by  Sipps outweighs the cost of switching.

Defaqto pensions and wealth management consultant, Matt Ward, says: “In a lot of cases, it may be the sensible thing to do, if you want to have greater control over your funds and consolidate them in one place. But as with any pension transfer, it is essential to check the cost of doing so.  It is the job of your IFA to weight up all the factors.”

To find an IFA in your area, visit www.unbiased.co.uk
0207 294 3682

To find out more about Sipps:
www.sippsupermarket.com

Read our Guide to Sipps:
http://www.defaqto.com/consumer/pensions/compare-sipps/guide-to-sipps.aspx

How much will your pension fund buy you as an income in retirement?
Try out our annuity calculator:
http://www.defaqto.com/consumer/pensions.aspx

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Alliance Trust supermarket to rebate trail commission

September 9, 2008 | posted by Pam Atherton in Uncategorized | comments (0)

Alliance Trust fund supermarket is to rebate 50 per cent of ongoing commission on  most unit trust and Oeics purchases within its Self Invested Personal Pension, Isa or investment account.

While many fund supermarkets offer discounts on initial charges, Alliance Trust will rebate to investors half of the ongoing annual management charge, which is usually paid to financial advisers(in this case Alliance Trust) via what is known as  “trail commission.”

As the annual management charge on most unit trusts is around 1.25-1.5 per cent, half of the trail commission equates to  0.5-0.75 per cent.

While Alliance Trust says that it will pay half the trail commission to investors on around 750 funds,  not all fund management groups, including Artemis and Invesco Perpetual, allow commission rebates on their funds.

Also before signing up to an Alliance Trust Sipp, Isa or ordinary investment account, it is worth calculating how Alliance’s overall charge structure will impact on any rebates you may be eligible for.

Its Sipp charges an annual fee of £75 +VAT, online fund purchases and sales will set you back £12.50, while phone and postal dealing cost £20 per transaction. Regular saving schemes are charged at £5 a month.

While Alliance claims to be unique in rebating trail commission directly to investors, Chartwell’s Investor Centre, rebates half of its trail commission to investors who register their funds on the Cofunds fund supermarket.

Also many of Alliance’s competitors do not levy transaction fees or charge lower fees than Alliance Trust.

Hargreaves Lansdown offers 1,700 funds, mostly with no initial charge and with rebate of trail commission of up to 0.25 per cent, but only on funds bought through Isas or directly.

Hargreaves’ Vantage Sipp, does not rebate trail commission, but makes no plan charge for investors who only holding unit trusts and Oeics with its Sipp.

Defaqto investment principal, David Abbis says: “As financial advisers receive commission to cover the cost of giving advice at the initial sale or for an annual review once the investment has been made, it would seem appropriate for Alliance Trust to rebate the commission they receive as they do not give advice.

“When making comparisons, it is essential to understand the service being provided and other charges that may be made, particularly when trading funds.”

For details visit:
www.alliancetrust.co.uk
www.theinvestorcentre.com
Check out our Best Buy unit trust tables (click on any of the unit trust sectors on the left hand side)
http://www.defaqto.com/consumer/investments/unit-trust-sectors.aspx:

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Climate change funds - another option for ethical investors

August 4, 2008 | posted by Pam Atherton in Climate change, Investments | comments (1)

With growing interest in how to tackle global warming, ethical investors now have a new option -  climate change funds.

One of the most notable entrants in this sector is the Virgin Climate Change fund, where the fund managers, Pierre Lagrange  and Ben Funnell of the second largest hedge fund GLG, cherry pick the companies they believe will deliver the best returns, while maintaining the best environmental credentials.

The fund invests primarily in stocks listed on the MSCI Europe index, using GLG’s Europen Equity fund as a basis. The managers also have the power to invest globally where opportunities arise, with no sector excluded.

The fund aims to invest 75-100 per cent in lighter footprint companies, with a so-called ‘green filter’ applied to screen out the heavier polluters, meaning that the managers only invest in a company if it is in the environmentally lighter half of its industry.

Up to 15 per cent can be invested in ’solution adapters,’ which means the managers try to invest in companies which are taking a lead in their industries, actively adopting best practice and always looking at ways to reduce their environmental footprint.

Up to 10 per cent can be allocated to ’solution providers’ - namely companies developing products and solutions to environmental problems. As the latter come with an element of risk, solution providers make up the smallest proportion of the fund.

The initial charge is 0 per cent, but the annual management charge is a hefty 1.75 per cent and the TER (representing the total costs) is an eye watering 1.81 per cent. Minimum initial investment is £500, with a minimum regular saving of £50 a month. In addition, a performance fee of 20 per cent over the Bank of England base rate also applies over any six month period that the fund performs above both the base rate and the previous six months’ performance.

As it only launched on 21 January 2008, there is little by way of investment performance to assess this fund. But given the high charges, the fund would have to produce at least 2 per cent pa just to break even.

However, for climate change enthusiasts and other ethical investors, this fund may be attractive for a small portion of their portfolio. Certainly GLG has a strong track record, but in today’s volatile markets, this is no guarantee of future performance.

Defaqto investment principal, Fraser DOnaldson, comments: “People looking at this fund should not expect any companies to be necessarily excluded on traditional ethical grounds. In some respects, this then makes selection of this fund a purely investment decision on the basis of whether you think companies that are leaders in dealing with climate change issues are better placed to succeed than those which are less attuned to the problem? There may be some mileage in this argument, but ultimately it is up to the investor to decide!”
Visit out top 10 unit trust tables:
http://www.defaqto.com/consumer/investments/unit-trust-sectors.aspx 

Read our guide to ethical investment:
http://www.defaqto.com/consumer/investments/ethical-investments.aspx

http://uk.virginmoney.com/unit-trust/funds.html

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Pru in dramatic U-turn on orphan assets

June 27, 2008 | posted by Pam Atherton in Insurance, Investments, Pensions, UK economy | comments (0)

Prudential today announced that it is pulling the mooted distribution of its inherited estate, following years of mulling the issue and negotiations with the FSA.

The inherited estate derives from assets accrued over many decades in its with profit fund which are assets in excess of the amount the insurer needs to fund its obligations to with profit policyholders.

AXA distributed part of its inherited estate a few years ago and Aviva (Norwich Union) is currently finalising an agreement over the division of its orphan estate.

Prudential’s announcement will be a bitter disappointment for the 4.5m with profit policyholders who would have been eligible for a windfall payout.

Prudential chief executive, UK & Europe, Nick Prettejohn, said: “Our with profits fund has been the top performing life fund in the UK over the past one, three, five and 10 years. Our overriding priority is to maintain the long term financial security of the with profits fund and to continue delivering strong performance for the benefit of our policyholders.”

Prudential chief actuary, David Belsham said: “Having a large inherited estate has enabled our investment managers to take a long term view on our investments. In 2003, we were buying shares at the bottom of the market when other insurers were forced sellers due to capital and regulatory constraints.

“The fund has produced fantastic investment performance of 134 per cent over 10 years and we paid out £2.7bn to with profits policyholders in February this year - more than a third of the value of the entire with profit fund of £79.1bn.”

However, the company was lambasted in a recent Treasury Select Committee (TSC) hearing when the insurer disclosed that it had used £1.6bn of the orphan estate to pay compensation for the  mis-selling of personal pensions in the 1990s. 

But Mr Belsham hit back saying: “No policyholder since 1990 has contributed to the the £8.7bn inherited estate so none of these policyholders have lost out from the £1.6bn used for mis-selling claims.”

A TSC report has also attacked the FSA for failing “to develop clear principles for the regulation of inherited estates” and for allowing Aviva to phase the distribution of its orphan assets over several years.

Which?, the consumer group, said the findings were a “damning indictment of the FSA’s lax regulation of the with profits industry.”

For more on the decision visit www.prudential.co.uk

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