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Personal Pension - Exit Charge

rockyrocky
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Personal Pension - Exit Charge

#148974

Postby rockyrocky » June 29th, 2018, 11:38 pm

Second posting in one day...

I have a fairly small old style personal pension plan. I took it out in 1992 and stopped paying into it a year or two later. Since then it has been transferred from this provider, to that provider, to another provider, to another provider...

Within the plan there are two separate policies. I can't remember why this is but I have a vague feeling that it might be something to do with contracting out of SERPS (?).

Anyway, I've transferred one of these policies into my new SIPP, which was fine. About £20k. The old personal pension provider took a small charge of £15 for closing the policy down, and the rest was sent across to my SIPP. Job done.

The other policy is different though - the transfer value pack shows a calculation of an early surrender charge of about 5% of the transfer value (£780 from £15k ish). I don't have any of the original terms & conditions I signed up to back in 1992, so I've no way of knowing why this charge is being made, or whether or not it's correct.

I've asked the provider to explain the charge to me, but they are yet to reply (after 3 weeks).

Is this sort of exit charge commonplace? Does anyone know why it would have been levied on one policy but not the other? Are there any "tricks" for avoiding it?

Thx.

Alaric
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Re: Personal Pension - Exit Charge

#148976

Postby Alaric » June 30th, 2018, 12:04 am

rockyrocky wrote:Is this sort of exit charge commonplace? Does anyone know why it would have been levied on one policy but not the other? Are there any "tricks" for avoiding it?


Quite commonplace yes. Usually to finance the adviser's commission which for a plan where you signed up for a regular premium could be 50% to 75% of the first year's payments. Rather stricter limits were imposed on the commission that could be imposed on SERPS rebates limiting the commission to between 3% and 4% of the rebates. If the contract talks of "initial" or "capital" units, these are danger signs as the concept was to recoup the commission over the lifetime of the policy to retirement age and charge an outstanding amount on early termination.

Avoidance could be difficult, one approach would have been to insist that each year's contribution was stand alone "single" premium.

parallellines
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Re: Personal Pension - Exit Charge

#149316

Postby parallellines » July 1st, 2018, 7:09 pm

rockyrocky wrote:Second posting in one day...

I've no way of knowing why this charge is being made, or whether or not it's correct.

Thx.


Quite possibly not if you're aged at least 55

https://www.pensionsadvisoryservice.org ... POT022.pdf

rockyrocky
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Re: Personal Pension - Exit Charge

#149320

Postby rockyrocky » July 1st, 2018, 7:25 pm

Ooops - forgot to mention my age. I'm 48. I've got c 6.5 years until I hit the magic 55.

My guess is that the company involved (very large, reputable provider) are applying the rules correctly, although I see no harm in challenging them to make sure. Due diligence and all that - kicking the tyres.

What I'm not sure about (phone call tomorrow I think, to try to find out) is what I'm paying to keep this thing running with the existing provider in terms of annual management charges and all that. If they want 5%-ish off me now to leave early, it might still make sense to pay the penalty if I'm paying more than about 0.8% p.a. as a management charge (because I can invest through my SIPP eg in equity index trackers for less than 0.1% p.a.).

There's also the "faff" factor - all else being equal, I'd like to move all the money into my SIPP just for less admin hassle, less stuff to keep track of, etc.

Thank you

rockyrocky
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Re: Personal Pension - Exit Charge

#149328

Postby rockyrocky » July 1st, 2018, 7:53 pm

Have just gone through all the paperwork, and eventually ended up in a dark corner of the provider's website where they list details of the various funds. Hard to be sure (so I'll speak to them) but it looks like I might be paying annual charges of more than 1% (grrrrr). If that's the case - will confirm first - then even paying the 5% exit charge I'll still be better off moving the money into a SIPP.


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