Monday, 21 September 2015

A Waiting Game

Following a week of "should I or shouldn't I" angst over my pension transfer, complete with much working out of whether I could manage to leave the pension intact (should I decide it's a good idea to do so) and still retire at 58, my manager dropped a quiet bombshell at the end of last week. Apparently "letters" will be issued by the end of the month.

By this we took him to mean that redundancies of some flavour are back on the menu. There has been much speculation and rumour on the subject for the last 18 months or so. (See here , here and here) with the latest "update" a couple of months ago being that there was to be no redundancy offer in our section due to the high number of contractors we still employ. Apparently so long as there are contractors in post, permanent members of staff cannot be made redundant despite the fact that the work done by the contractors is in a specific role for which none of us are trained, and at a lower level than we are currently employed. Apparently management have now found a way round this, maybe by shuffling people around departments as they're deeply immersed in a transformation exercise at the moment. ("Transformation" being the word you use when you want to find a way of getting the same amount of work done by half the number of people :-))

I had put the possibility of voluntary (or compulsory) redundancy and how it could work for me to the back of my mind but as it might now come back to the forefront, I don't feel equipped to make any type of decision on my pension. The "Welcome" pack from Fidelity is sitting, unopened, on the shelf.

If I'm made redundant I would get immediate access to my LGPS pension, unreduced. There would be no pressing need for me to have access to the £20,000 in the FSAVC over the next couple of years (although it may still be desirable).

So, many thanks to all who left very useful comments on my last post but for the moment I'm going to park it and wait to see what the end of the month brings. Fingers crossed I either get my marching orders or can apply to be given them :-)

Tuesday, 8 September 2015

GARs, Misleading Pension Statements, Transfer Troubles and Other Gripes

After waiting for over 8 weeks I have finally heard back from Fidelity about my request to transfer my CIS FSAVC into my SIPP. It wasn't good news. Because the FSAVC (Free Standing Additional Voluntary Contributions) has a Guaranteed Annuity Rate they require me to take advice before they will accept it (even though the transfer value is less than £30,000).

They do, of course, offer this advice service themselves for the cost of £500. This fee is payable even if the advice turns to be "no, sorry, it's the wrong thing to do and we won't accept it". In which case, I am informed, the fee will have VAT added on top.

So I have a dilemma. I knew that there was a GAR attached to my pension but I didn't think Fidelity would require me to pay for advice before transferring it, and I don't think that the FCA requires them to do so either as suggested by the quotes below from a policy report released earlier this year.

"Historically there has been no need for a PTS to advise on a transfer from a scheme with a GAR and it makes sense that it shouldn't be implemented now.
"Although providers should be able to show the client what benefit they are giving up if they choose to forego these GAR even if the fund is under £30,000, where advice may not be given."
  • Should I therefore look for a platform that will take my FSAVC without requiring that I pay for advice? Does one exist?
  • But firstly, and importantly, should I think more carefully about the GAR and what I would actually be giving up seeing as Fidelity obviously think that this option requires £500 worth of investigation by a pension transfer expert.

A little background

I started paying into the FSAVC in 1996 because I knew I had gaps in my pension provision due to taking time out to have kids. I was working at the Council at the time but was in a fairly low paid role and wasn't sure how long I would stay, so I didn't really consider supplementing my pension there. Looking back this was possibly the wrong thing to do given that soon after taking up the CIS policy I got promoted into a job that's served me well ever since. Putting more into my LGPS at the time would have made a significant difference to the value of my DB pension now.
It could even be argued that the CIS (Co-Op) representative who sold me the pension was guilty of a mis-selling as he knew that I was in the LGPS and could/should use that to boost my pension rather than buy an independent product. However when the new pension rules were introduced this year and it looked as if there was going to be more flexibility around taking the FSAVC before my LGPS retirement age of 66 (or so I thought until I received the letter from Fidelity), I have been glad that I went the way I did and continued to pay a (very) modest amount into the FSAVC alongside my main LGPS scheme.

But what did I buy back then?

Working out the actual benefit that my FSAVC "with profits" pension carries has been quite difficult, especially for someone who knew nothing at all about pensions before I started thinking about how I could retire as soon as possible a couple of years ago, .
The policy benefit schedule looks like this:

And after doing a little research I took this to mean that it has a GAR of 6%
This was confirmed during a phone call with CIS (now Royal London) yesterday. So for every £1,000 in the fund at the time of retirement I am guaranteed £60 pa pension. As far as I am aware there is no index linking, widowers pension or any other "with profits" benefits. The transfer value in March 2015 was £19,200.
All that sounds fine but it doesn't actually tie in with the annual statement which says under the heading:
 Pension you Might Get at age 60
  • Your fund might be £22,200
  • which could give you a taxable yearly pension of £604

I queried the discrepancy in the figures (projected fund around £22,000 with a GAR of 6% - surely the projected pension is £1,320 not £604?). The CIS representative responded that the figures quoted in the statement don't include the GAR and she couldn't say what the pension would actually be with the GAR because they didn't know what the end figure would be. This doesn't make any sense. The statement already quotes me a projection and we all understand that a projection isn't a guaranteed figure. Given that, how can it be right to send out statements for pensions with GARs that do not include the projection for the GAR. That's the whole point of it being a guarantee - if my fund is £22,000 at pension retirement age I'm guaranteed 6%. I'm guaranteed £1,320.
The conversation went round in circles with me asking for a statement that included the GAR and her saying they couldn't do it. The only thing I could get her to agree to was to send out written confirmation that the FSAVC has a GAR of 6%, as although I have the scheme schedule, I felt that I wanted something more recent especially as the fact that I have a GAR apparently can't be included in any of the workings on my statement. The only reference to the notion that the figures may simply not apply in your case is in the "General Assumptions" section, one of which is "we have ignored any guaranteed minimum amounts that may apply to your policy". No wonder people complain that they can't understand pensions.
In conclusion I now have some work to do to find out if there would actually be a benefit to keeping the pension as it is and drawing it at the scheme age of 60, when I could also draw a reduced LGPS pension. In which case I need to look at those years between 58 and 60 again and assess if there is a way my existing SIPP/other funds/extra saving could fund them. 
And, if I find there is no benefit to doing this, I then have to decide whether or not I want to pay Fidelity £500 to tell me the same and accept the transfer, or, even worse, pay them £500 plus VAT to tell me it's a terrible thing to do and refuse.
Part 2 (including workings out) to follow, but any comments in the meantime would be much appreciated.

Saturday, 5 September 2015

August 2015 Update

The month has been another busy one with day trips to York and London and an overnighter up in Yorkshire for my Mum's birthday. However all this hasn't worked out too expensive in the scheme of things as we used my leave last week for a "staycation" instead of travelling further afield, so there were no expensive hotel bills as anticipated. The plan had actually been to wait and see what the weather did and take the tent somewhere if at all possible, bailing out into a hotel if necessary, but there was altogether too much rain and wind for us to be able to raise the enthusiasm to pack our bags so we bought a local footpath map, packed picnics and "discovered" the area on and around our doorstep instead.

The good news is that the final part of my husband's TFLS finally turned up. Most of it stayed in our new NationWide current account to keep the balance topped up over the £2,500 and so gaining the maximum 5% interest, but £500 was invested in the Scottish Mortgage global equities IT we hold. I just happened to make the buy on "Black Monday" , however the timing was more by luck than by design as we had planned to do it anyway. It did no harm to buy at the lower price though. (This trust is currently trading at a 2.42% premium to NAV so I do have some misgivings about buying more, but it is just about the only exposure we have to American large caps at the moment and the charges are fairly cheap at 0.51%).

My FSAVC still hasn't made its way into my SIPP. Fidelity went down somewhat in my estimation when they phoned at the beginning of the month asking why I hadn't returned a bit of paperwork they needed to progress the transfer, and then obviously came across the said form in my file half way through the conversation. I'm used to this kind of administrative fiasco with Interactive Investor but I did think (hope?) that Fidelity were a different kettle of fish. Maybe not. I'm now almost 8 weeks into the transfer (the maximum time they quote for it to complete) but not holding my breath. It took iii over 6 months to transfer in both mine and my husband's ISA, so I know full well that patience is a virtue (and the only way to stay sane) with these things.

Further administrative incompetence meant that my instruction to reduce my work's pension AVC from £500 to £200 per month was not activated in time to make the change by the time my salary was paid at the end of the month (despite my asking for it to be done on the 2nd). This, although annoying, is probably a blessing in disguise as boosting my AVC pot is a very tax efficient way of increasing my post-retirement funds and being forced to put in a little, if unplanned, extra is not such a bad thing. Hopefully payroll will manage to make the change by the end of this month though, as our monthly budget requires that my salary is at a certain level now that my husband only has his pension coming in.

The financial news this month has been dominated by the volatility in world markets sparked off by the steep drop in the Chinese stock prices and the fear that growth there is slowing down. This has meant that our combined portfolio has dropped this month despite the fact that we have ploughed in over £1,000. The total is down from £126,304 at the end of last month to £124,759 this and is recording an investment loss of 4.7% for the month. (This figure includes our ISAs and my private pension and AVCs but not our DB pensions.) However on the whole we are fairly comfortable with the turbulence as I secured the cash we will need for the next couple of years to see my son through his MA course by selling funds a couple of months ago and took some further profit from our Japanese and Bio-Tech investments at the same time. It will be interesting to see what the coming months (and years?) bring.

On a more serious note we have all been further, and tragically, reminded that we live, and act in a global environment by the ongoing refugee and migration issues. The opportunities brought by global trade and travel also bring responsibilities. Simplistic nationalism backed up by barbed wire fences just won't work for very much longer and Europe is being forced to recognise this. Escaping war at home is one of the the current drivers, but in the future mass population migration may well involve many more desperate people moving around the globe trying to escape the effects of climate change. Personally I'm pessimist about our ability to reduce carbon emissions enough to prevent very real problems. We continue to dig fossil fuels out of the ground even though the harm reduction plans we are pretending to put in place mean that we cannot possibly burn them, the UK government massively reduces subsidies for renewable energy and we continue to reward CEOs for deepening the climate change crisis. This year is set to be the warmest on record, intensifying patterns of extreme weather. In the light of all this the ongoing market "blips" and the effects they have on our portfolio pale into insignificance. Hey ho.