The Lemon Fool

Hi Guys,
the big day has arrived and although no state pension until next year I have a small with profits pension maturing today.This was my first personal pension bought from CML about 40yrs ago. As with all of my other pensions I started before opening a SIPP it is now run by AVIVA. Back in the day "with profits" was sold as a way of smoothing out the the volatility of stock market investing and then all was divvied out at a final bonus. All went well initially with bonuses added to the fund each year and that juicy final bonus to come. Then in 2001 they paid the last annual bonus. AVIVA took over about five years ago and after a couple of years dropped the paragraph about the final bonus.
As the big day approached they sent several letters with calculations for the annual annuity encouraging me to accept the amount which has hadn't changed in 20yrs. I called the help desk to discuss the issues but basically the poor guy was out of his depth. I then wrote a letter asking about the terminal bonus. I think, the issue is that there is a guaranteed 8.5% annuity rate and in the small print they are covering themselves against a larger payout ie who was the "with profits" scheme there to protect. Now we are not talking life changing sums ( cover the annual wine bill ). What is concerning is that there is no paperwork to support the lack of bonuses over the last 20yr when the MSCI index has gone up 400% ( yes i do realise other indices are available and I am aware of the bond issue. Anyways that"s the background. The telling paragraph from their letter says :
" A terminal ( final ) bonus may be added to the policies at the end of the term, or in the event of a claim. It is calculated by using a percentage of the sum assured and accrued bonus. This is dependent upon the term of the policy and is not guaranteed. We do not quote the current terminal bonus rate.)" Anyone understand the implications of this paragraph.
Because of their obfuscation I have elected to wait until the policy matures so I can ask the question of what the final figure is. More importantly like any good maths teacher I shall ask how they arrived at this correct amount.

Look forward to your views before I contact them.

As always, thanks in advance.

SB

If you are saying that there have been no bonuses for the last 20 years why not? I would certainly have transferred it to a SIPP long ago. I did that with a couple of similar policies that were taken out for me 30 years ago. That of course is history now and there is not much more to say but I would certainly be asking about investment returns due to you.

Dod

Hi Dod,
if you remember Coleyfish, he was my financial advisor ( God rest his soul ) and the best I ever met by a country mile. We had bigger fish to fry and of course you lost the 8.5% annuity rate which you had to wait until 65 to realise. I think this is the nub of the issue. Like Equitable life, when they wrote these policies they never expected a world of almost 0% interest rates and so they are making the policy fit what they think is fair for them. Hence why I shall be asking VIVA jnr to show me his working out.

SB

Snowbadger wrote: As the big day approached they sent several letters with calculations for the annual annuity encouraging me to accept the amount which has hadn't changed in 20yrs. I called the help desk to discuss the issues but basically the poor guy was out of his depth. I then wrote a letter asking about the terminal bonus. I think, the issue is that there is a guaranteed 8.5% annuity rate and in the small print they are covering themselves against a larger payout ie who was the "with profits" scheme there to protect.

The likely story is that if you take the guaranteed amount of annuity it would cost them an arm and leg to finance it. They might, at a pinch, offer you an amount to go away, but it might not be competitive with taking the annuity.

Both Scottish Widows and Pearl (now Phoenix) did this 'freezing' business with annual bonuses on my two small 'with profits' policies. Both were marketed very strongly ( I kept the original ads) and the ads would I guess not be legal now,

Luckily the policies are small enough to not to cause me a problem ( total represent about 5% of my retirement income). Both had/have guaranteed annuity rates with them and on balance not worth transferring. The big choice was of course in 2011 with these when annuities became optional and on balance I decided to stick with them rather than transfer to a SIPP ( thinking back I also recall that this was a period of 'market value reductions' on 'with profits' policies).

A useful lesson for myself and my family - trust no one except yourself to manage your money (your views may vary!).

They have been offering me money to go away for at least 20yrs and three times this year already. Bit like a games show. And yes it's not a massive sum as I have exceeded the LTA already in my SIPPThis is more about getting them to justify how they can tell me what I'm getting in my pension without justifying how they came to that figure. I'm sure you all agree it isn't right but probably probably in the small print. What I find stinks most is offering me an assured sum before the final bonus which may or may not exist is known. Bit like the Schrodinger cat puzzle. At one stage they even hinted that the final bonus could be negative. Truly taking the piss. Anyways next step is asking if they now have the final bonus figure and asking for the calculations. That will keep em busy!

Cheers.

SB

As expected the final bonus turns out to be zero, but they forgot to answer my question about how their calculations led them to this conclusion. Also I asked where in the contract document it says they can stop paying bonuses if they are worried about their costs.I thought WP policies wre there to protect the investor. The fund increased by 35% in the last five years, so my next request is for the figures for the previous 15yrs before I have a chat with the pension ombudsman.


Cheers,

S.B.

Snowbadger wrote:As expected the final bonus turns out to be zero, but they forgot to answer my question about how their calculations led them to this conclusion.

The likely story is that if you take benefits in guaranteed annuity form, they will have to dip into their reserves to finance it.

Perhaps they should get dipping!!!

The 8.5% Guaranteed Annuity Rate (GAR) ..nice

My wife had a few CO-OP policies with a GAR in place..you could hear the begrudging tone when they offered an annuity which was about 80% higher than one could obtain using current annuity tables. It was almost as though the rep on the phone was having to make up the uplift out of his own pocket...shame really!

Snowbadger wrote:As expected the final bonus turns out to be zero, but they forgot to answer my question about how their calculations led them to this conclusion. Also I asked where in the contract document it says they can stop paying bonuses if they are worried about their costs.I thought WP policies wre there to protect the investor. The fund increased by 35% in the last five years, so my next request is for the figures for the previous 15yrs before I have a chat with the pension ombudsman.


Cheers,

S.B.

You have said "somewhere in the small print", "where in the contract document", "probably in the small print", and "there is no paperwork".

The answer lies in the contract you entered into, and therefore need to see that to know (and without it we can't know either). So get the contract from them. If they can't provide it then you won't agree and so take it to the ombudsman for him to rule.

After several weeks I finally have a reply to my queries. During the last 20yrs when there have been no new annual or final bonuses applied, the fund has increased by over 100%. There is a telling line in their response.

" Bonus rates are set to reflect investment conditions experienced by the policy. Many of theses policies have very high values compared to how the with profits fund has performed over the same period due to the level guaranteed benefits and past annual bonuses already added. We have therefore maintained interim bonus rates at zero to avoid overpaying on theses policies"

Doesn't sound like an investment to me as the outcome is fixed!!! i.e. if the returns are poor, they don't care, if they are good they don't pay.

So having had my Equitable Life pension crimped by 25% as I had no GAR, I am expected to take a hit this time because I have one!

As I want to transfer the fund into my SIPP and not take the GAR surely they should make up the difference. ( I have very good reasons for doing so ).

Ah well, once more unto the fray

Cheers.

SB