It may surprise you, but I am still paying commission to Allied Dunbar on a pension I took out in 1986 and stopped paying into in 1989.
That commission works out as a 3.5% pa charge on the units I purchased in the first two years of my contract and I am still paying that 3.5% as I type – 31 years since the point of sale (the only point of contact i had with the advisor).
Most personal pensions sold between the mid 1970s till RDR in 2012 were sold with this kind of charging structure and it is only now, when the units have matured to a decent value, that we are paying companies like Allied Dunbar (now Zurich) the money back.
Until very recently, there was no way out of paying these charges, my personal pension has a contractual term that runs to my 60th birthday so the transfer value of my pension assumed a clip of around 20% (the value of those 3.5% deductions over the last 5+ years of my investment). Allied Dunbar simply took the money by right (read the small print).;
However, and this is very important if you are reading this and have a personal pension, everything changed a couple of years ago when the Government capped the amount that can be taken by the insurance company as an early transfer penalty at 1% of the amount you have saved. For me this has meant that my transfer value has shot up since my 55th birthday by around 19%!
My uplift is particularly high because I stopped paying into my personal pension after less than three years, but I wasn’t alone in that, the “lapse rate” on the type of contract I was in – especially among younger people -was high. Back then , as soon as you worked for a company with an occupational pension, you either gave up your works pension rights or had to stop paying into your personal pension
Not everybody knows that!
The Government’s early transfer cap recognises that most people with high transfer penalties never got the advice the charge on those early units was there to pay for and many of us stopped paying into the pension because we got a job that had a works pension.
However, not everybody knows that they don’t have to pay these extortionate charges and that they can transfer away with only a 1% penalty.
One of the reasons for that is the peculiar reluctance of some insurers to tell people they have this option! Funny that!
Yesterday I received a letter from Zurich (who have taken over Allied Dunbar) telling me about my retirement options.
Actually, one of my retirement options would be to transfer my money into a new style contract with Zurich where instead of paying the 3.5% penalty charge each year, I’d pay no penalty charge at all!
Unsurprisingly, the bulk of my money is not with Zurich and I intend to consolidate the Zurich pot into my main personal pension which is with another company.
Not a lot of people know they can now do this – which is the point of this blog!
Better late than never
I’m pleased to have got the letter, earlier in the year I’d heard a rumour that Zurich weren’t honouring the 1% exit penalty guarantee. It was only a rumour but it might explain why these retirement options were sent to me over 10 months after my 55th birthday.
In the meantime, I’ve been paying 3.5% pa of “plan value” to Zurich for nothing at all. This pisses me off.
I’ve asked Zurich to look into why there is a delay and if I don’t get a proper answer I will escalate to the Independent Governance Committee. Actually I have already escalated this issue previously (poor old Laurie Edmunds), so I’ll be reminding him that Zurich are lagging.
It’s better that I get the offer to move my money late than never, but I wonder how many other Zurich policyholders have really clocked the significance of the 1% offer and how many simply opt to cash the money out (as advertised in the letter).
In my case, cashing out would have crystallised my money purchase allowance, reducing my capacity to pay future contributions from £10k to 4k pa (not a lot of people know that either.
Tricky things pensions- particularly tricky when you have small legacy pots.
One option – Pension Bee
Pension Bee’s Romi Savova
If you want to know more about your options to consolidate, you might do worse than speak to Pension Bee which you can do by picking up your smart phone and dialling 020 3457 8444
This is not a paid for thing, there are hundreds of great IFAs who can help you here and other services which I’m sure rival Pension Bee’s. But I’ve recently been doing some due diligence on Pension Bee and can give them the thumbs up! Good people!
If only you had had an IFA you could have avoided paying the charge for the last 28 years. But then many people are penny wise and pound foolish.
Incidentally the commission would only be 0.25-0.5% and only if the agent were active. I guess the company kept the whole of the money
Henry, are you sure you are quite right regarding this? Perhaps you are confusing the “capital unit levy” with commission?
Although Allied Dunbar (as was) had a slightly different way of calculating and paying commission depending on whether the plan was sold by the direct sales force or via an IFA, you have to remember that most companies selling pensions back in the day used some variant of the “LAUTRO” scales.
Setting aside single contributions, I think you will find that the maximum commission earning period was 25 years as far as “initial” commission was concerned. I have a table here on my desk setting out the details. As an example, pay £100 per month into a PPP with a 15-year term than the “indemnified” commission would have been 23.68% of the annualised premium with a 12 month “earning period”. That’s “100% of LAUTRO”. When the maximum commission agreement was abandoned (as “anti-competitive”), commissions rose to, say “140% of LAUTRO”. In this example, the initial commission at 140% of LAUTRO would have been £397.82.
“Renewal commission” was payable after the initial period at a rate of 2.5% of the premium, but this was limited to a 10 year period.
Unless the seller built-in ongoing “trail commission” (another story), I don’t think very many old personal pensions will still be paying out commission to the seller, IFA or salesman.
You are right, however, that some old contracts do have high expense deductions and I agree that individuals should do something about that. I’m not criticising your Pension Bee friends, but it looks from their website that they are building their business on so-called “ad valorem” charges which, perhaps, isn’t so different from renewal commission!
Best,
I thought of using “paying for commission” rather than “paying commission” but prefer the more direct approach which amounts to the same thing. The 3.5% charge on Allied Dunbar capital units is paid on top of a 0,75% AMC, the Government has decided to cap this legacy charge on transfer, but not to scrap it for those who stay in the contract. As far as I can make out, Zurich are doing their best to keep customers in the expensive contract. More anon!
Whilst I am no apologist for what was once Allied Dunbar, it is the case, in my experience, that a lot of the PPP/FSAVC/EPP plans that were sold by the firm in the 80s and 90s were set to “mature” at age 50 or 55 by the salesforce (ignoring as to whether the individual policyholder would actually take benefits at these ages) and this can be to the advantage of some policyholders who continue to contribute past those ages.
That’s because of a peculiarity of Allied Dunbar’s charging structure. In essence, payments made after the “selected retirement age” (and sometimes the whole fund) has all management costs removed.
Many old PPP’s have obscure “loyalty” bonus features such as charge rebates and increased allocations to fund units, for example. These need to be considered carefully.
The best way of doing this is to request a projection of benefits from, in this case, Zurich Assurance, to, say, 65 or 70. You can then carry out a market comparison by using one of the software packages such as “Pensions Profiler”, to name but one.
I recently did this for some ex-Sun Life PPP’s my firm arranged in, I think, 1992, and these easily “beat” the current market “opposition” on a charges comparison because of a loyalty bonus feature.
Of course, investment choices and the availability or not of Flexi Access Drawdown are important considerations but I take the view that if the existing contract is attractive enough from a charges point of view why not wait and change, if that’s what you want to do, just before accessing the fund in one way or another?