Personal pension investors in Winterthur Life's with-profits portfolio face large market value red...
Personal pension investors in Winterthur Life's with-profits portfolio face large market value reductions (MVRs) when staying in the fund but moving into income drawdown.
The MVR charged depends on the exact date of investment and disinvestment. For example, money put into the fund in August 2001 now faces a MVR of 27.53% should the scheme member decide to move into drawdown.
Transferring a personal pension into drawdown is classed as taking benefits before retirement date or policy maturity, the group's basic criteria for applying a MVR reduction. While the subsequent income withdrawals will not be subject to MVRs, if the member buys an annuity at a later date, they will face a further reduction as this is seen as buying another retirement benefit.
Such application of the MVR has drawn criticism from one adviser as the money is effectively remaining in the with-profits fund, apart from any tax-free cash component removed. The transfer will therefore have little negative impact on the fund's other investors.
According to Richard Henderson, partner at London-based adviser Holborn Financial, such a transfer only involves a change of wrapper for the money, from personal pension to drawdown, which does not justify such a MVR.
Technical support manager at Winterthur Life, Alan Reynolds, said while he does understand this point, the transfer is not as smooth as it might look on the surface.
'While the money essentially remains within the with-profits fund, the personal pension and drawdown policy are two separate contracts,' he said. 'Such a transfer involves us physically disinvesting the money in order to value the fund for drawdown purposes before reinvesting it. It is Winterthur policy to apply a MVR in such circumstances.'
Among other life offices, Scottish Equitable also applies an MVR for transfers to drawdown policies, although the group stresses this is only because its High Equity With-Profits fund, its sole with-profits product available for pension investment, has been closed to new business since last September.
At Legal & General, if a pre-retirement scheme member invested in a with-profits product wants income from the fund, the group will apply an MVR on the units encashed to provide it, so one set of policyholders does not benefit at the expense of another.
Marketing director (retirement) at the group, John V Morgan, said the issue is not relevant post-retirement as L&G takes investors out of with-profits at this point, crystallising the units and reinvesting the money in a vehicle of the investor's choice.
Scottish Widows has a similar structure, offering with-profits pensions up to retirement but not an income drawdown with-profits facility. If scheme members wish to stay with the group post-retirement, they have to change to a unit-linked offering.
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