Zurich dormant Pension

[MrJones]

I am aged 53 and I am looking for some help please with a dormant Zurich Pension I hold

It is a pension I took out around 30 years ago before I joined a company pension scheme - it has been dormant for approximately 20 years.
Current value = £37,947.63 of which 50% is Non-protected rights fund holding and 50% is Former-Protected rights fund holding.
Currently invested in a fund called Zurich Managed AP which has an objective to achieve Medium to Long Term capital growth.
It appears to be on track to pay out around £1000 per annum at aged 60 and I am looking to gamble this part of my pension and place it in a riskier short term investment to attract a better return.

As I see it there are possible options

1/ Leave alone - some would say it is doing quite well at Zurich.
2/ Remove from Zurich completely and re-invest on another platform - I am familiar with Hargreaves Lansdown.
3/ Re-invest in higher risk funds within Zurich - but which funds?

I would prefer to re-invest in a risker fund(s) with Zurich but I do not know where to start. When can I get advice on good value/well performing Zurich funds because when I asked Zurich they just referred me to a IFA. That is fine but for such a small pot my local IFA is quoting me 3% of the fund = £1150. That hardly seems good value

[Alaric]

I would prefer to re-invest in a risker fund(s) with Zurich but I do not know where to start.

You may find something of use at the Zurich site
https://www.zurich.co.uk/pensions-and-i ... nning-fund

Against that it may be simplest to transfer the value to Hargreaves or another as a SIPP and reinvest in funds where the performance and risk information is readily available.

[MrJones]

That is great advice - thank you.

Any reasons why I should not move it to another provider as a SIPP ?

[NegevSouth]

I also have a Zurich Managed AP fund which has been untouched since mid 90s. The SEDOL number is 0406181. It has doubled in value since 2010, so an annualised growth of 10%. I don't particularly need it for the next few years, so may as well leave it where it is. From what I believe, there will be NO transfer charge when/if the time comes.

[mc2fool]

I also have a Zurich Managed AP fund which has been untouched since mid 90s. The SEDOL number is 0406181. It has doubled in value since 2010, so an annualised growth of 10%.

Doubling in 10 years gives an annualised growth rate of 7.2%.

[yorkshirelad1]

As other have said, check carefully what you are able to do within the rules and benefits of the existing pension.

Also

• check the costs (both the costs of the plan itself and the underlying fund). You may be able to do better elsewhere (e.g. in a low cost SIPP) (but check the benefits of the existing plan which may not transfer across)
• Zurich's admin is not quick*

*(I am trying to get to the bottom of a life insurance policy and the underlying fund that were taken out 50 years ago and they take 5-10 days to answer a basic e-mail enquiry, don't answer the question first time, so you have to get back to them, "will get back to you" if you ring up, and "the technical team don't make outgoing phone calls" so any reply gets munged through layers of "customer service" and you don't get to speak to anyone who knows anything useful without referring back to someone else)
Grrrrrrr.....

[Alaric]

If the old Zurich pension has anything like a guaranteed annuity rate, that could alter things drastically and mean a transfer out to a SIPP could be highly disadvantageous.

The folly of adding guaranteed annuity rates to policies where the proceeds were linked to the price of a fund had been established forty years ago, if not longer. If the Zurich policy is from the Hambro/Allied Dunbar stable, it wouldn't have a guarantee

[NegevSouth]

Doubling in 10 years gives an annualised growth rate of 7.2%.

Yes I realise that.
I presume the current value of the fund as compared to what it was 10 years ago factors in the 0.93% annual costs, so would the annualised growth rate be nearer to 8%?

Out of interest, what is the formula to work out annualised rates?

[Alaric]

Out of interest, what is the formula to work out annualised rates?

You are looking for the value of g such that if A is the value now and B was the value 10 years ago,
then A = B * ( 1 + g ) ^ 10
That assumes no money is added to the fund or taken out.

Numerous ways to solve this, a traditional elegant mathematical approach is to take logs of both sides. Alternatively there are some useful Excel functions in PV, FV, IRR and XIRR or just brute force by trial and error or goalseek.

[GrahamPlatt]

https://en.wikipedia.org/wiki/Rule_of_72

[NegevSouth]

Out of interest, what is the formula to work out annualised rates?

You are looking for the value of g such that if A is the value now and B was the value 10 years ago,
then A = B * ( 1 + g ) ^ 10
That assumes no money is added to the fund or taken out.

The formula is absolutely meaningless to me. I have no idea what is the asterisk, the digit 1, the letter g, and the arrow.
My fund was valued £28,000 in Dec 2010. It's now valued £56,000. Each year the costs are 0.93%

[dealtn]

Out of interest, what is the formula to work out annualised rates?

You are looking for the value of g such that if A is the value now and B was the value 10 years ago,
then A = B * ( 1 + g ) ^ 10
That assumes no money is added to the fund or taken out.

The formula is absolutely meaningless to me. I have no idea what is the asterisk, the digit 1, the letter g, and the arrow.
My fund was valued £28,000 in Dec 2010. It's now valued £56,000. Each year the costs are 0.93%

A is the current value, so £56,000 in your case.
B is the initial value, so £28,000 in your case.
* is "multiplied by"
1 is 1, the commonly known first number when counting.
g is the unknown here that you are trying to work out, that has been called the "annualised rate" (the formula you expressed an interest in).
^ is "to the power of"
10 is 10 (see 1 above!)

In reality 10 would be replaced by "T" as the length of time, in years (or different units if you weren't looking for an annualised rate). But in your case 10 is sufficient.

So you have only one unknown, g, so this is easily calculated mathematically to answer your question, and can be applied in every other example where g is the only other unknown.

[daveh]

Out of interest, what is the formula to work out annualised rates?

You are looking for the value of g such that if A is the value now and B was the value 10 years ago,
then A = B * ( 1 + g ) ^ 10
That assumes no money is added to the fund or taken out.

The formula is absolutely meaningless to me. I have no idea what is the asterisk, the digit 1, the letter g, and the arrow.
My fund was valued £28,000 in Dec 2010. It's now valued £56,000. Each year the costs are 0.93%

Well 1 is 1 ( the number 1), * means multiply, ^ is raise to the power of ( in this case 10 as it's a calculation for 10 years) and I assume g is the return rather than acceleration due to gravity. Stick the values you have quoted into the equation and you should be able to calculate g. Personally I'd just use the XIRR function in excel.

[NegevSouth]

The above is totally meaningless to me.
Do I multiply 28,000 by 1 or by 10? Or do I multiply it to the power of 10, which is 10x10 ten times? How does it factor in 0.93 annual costs?
I have no idea what excel is, so we'll leave that!

[mc2fool]

The above is totally meaningless to me.
Do I multiply 28,000 by 1 or by 10? Or do I multiply it to the power of 10, which is 10x10 ten times? How does it factor in 0.93 annual costs?
I have no idea what excel is, so we'll leave that!

Microsoft Excel is the world's most widely used spreadsheet program for the last 30+ years.

For the purposes of calculating your annualised rate of return you ignore the costs, as they are taken out "invisibly" before your valuation; the costs could have been 0.93%, 9.3% or 93% but the bottom line is that your £28K has turned into £56K, and that's what you are calculating your annualised rate of return on.

Now, the thing that may not be obvious from the previous posts is that, in the arithmetic, the growth rate, listed here as "g", is expressed as a percentage of 1.

So, if you have a growth rate of, say, 7.2% a year then g is 0.072. So, the amount you have at the end of each year will be 1.072 times (1 + g) the amount at the start of the previous year.

So, if you start off with 1 then at the end of the 1st year you have 1.072, at the end of the 2nd year 1.149 (rounding off), 3rd year 1.232, etc, for each year multiplying the previous figure by 1.072.

In other words, it increases by 1.072 to the power of the number of years, expressed as (1 + g) ^ years. So, you can calculate that for your rate of return and number of years and multiply that by your starting value to get the ending value, and that's what the A = B * ( 1 + g ) ^ 10 is doing.

However, in your case you're going the other way round; you know the starting and ending values and it's "g" you want to calculate, so ... g = ((A / B) ^ (1 / years)) - 1

For your case, £56K divided by £28K is 2 and it's taken 10 years to achieve that doubling, so what you want is the 10th root of 2, which is 2 to the power of 1/10, i.e. 2 ^ 0.1, which = 1.072. Subtract the 1 and remember that the growth rate is expressed as a percentage of 1 and you get ... (ta da!) ... 7.2%.

As others have noted, there are a variety of spreadsheet functions that will do the calculations for you, but if you don't want to mess with one of those, or with a calculator then these look like they do the job:

CAGR (Compound Annual Growth Rate) Calculator: https://www.thecalculatorsite.com/finance/calculators/cagr-calculator.php
Compound Interest Calculator: https://www.thecalculatorsite.com/finance/calculators/compoundinterestcalculator.php

[JohnW]

OECD Statistics. Definition: Annualised growth rates (Annualised rate of change) show the value that would be registered if the quarter-on-previous quarter or month-on-previous month rate of change were maintained for a full year.
https://stats.oecd.org/glossary/detail.asp?ID=6681
Are we talking about compound annual growth rate?

[monabri]

If the old Zurich pension has anything like a guaranteed annuity rate, that could alter things drastically and mean a transfer out to a SIPP could be highly disadvantageous. You need to look very carefully to see if you would be giving up very valuable benefits if you transferred. GAR can be set at a high number on older pension plans.

RVF

Definitely worth checking Mr Jones to see if there is a GAR.

My wife has just taken out an annuity on an old pension pot which had a G.A.R. It effectively uplifted the annuity payout by ~80%. (The single life, zero increase option offered a yield of over 6%).

( it's a pity she only invested a small sum in the pension 30 years ago !)