Pre-Retirement Reconstruction
Many pension plans set up more than three or four years ago carry significantly higher costs than would be feasible in the current stakeholder climate. These policies may have been built up through regular contributions over many years or perhaps arose out of a transfer value or single premium payments. In some cases there will be penalties on transferring them to a new arrangement. However it is important to analyse the penalties to assess what they really mean.
A classic example is the policy with capital or initial units. In many cases the penalty on transfer is simply the capitalised value of the future capital unit charges. Insurance companies offer transfer values that reflect the effects of the initial establishment costs of the plan but the charges are normally collected over the lifetime of the policy. It is essential to consider each case on its merits to establish whether or not there is any material disadvantage to the client.
The "Due Diligence" Process
Before recommending any investor to reconstruct his or her pension plans we carry out an analysis of the policies to establish what, if any, material disadvantage would arise. This process looks at a number of issues, not just charges. Where the transfer value simply reflects the future charges that would be deducted anyway this is a "neutral" factor - the policyholder could theoretically transfer the benefits back into a new plan with the same insurance company and assuming the same fund links would arrive at retirement with virtually the same maturity value.
The other factors we look at include death benefits, tax free cash, investment choice and past performance. In many older policies the death benefits will be less than the transfer value while in more recent plans the death benefits are usually the full fund value which is often higher than the transfer value. Where the current benefits originate from an occupational pension scheme then transfer to a Personal Pension may significantly increase the lump sum death benefit unless the investor is a controlling director or high earner. In such cases a transfer may be appropriate anyway in order to avoid the benefits being restricted by Inland Revenue limits.
Investment Choice and Performance
Although a few companies are now offering external fund links these are quite restricted and in many cases involve some element of double charging. Older policies will usually not have access to the new funds and will be stuck with the life companies limited in house range often giving mediocre investment returns. Our low cost SIPP arrangement gives us access to 15 leading fund managers at unbeatable charges. With no bid offer spread and unlimited free switches the opportunity to enhance performance through wider investment choice is considerable.
Risk Profiling
Due to the way in which insurance companies have historically promoted their products there is often a "mis-match" between the client's risk profile and the investment basis of the existing plan. With Profits policies are a classic example but even Managed Funds treat every investor as the same. And since most people with higher fund value are likely to take advantage of income drawdown their potential investment horizon is now age 75 which makes the mis-match even greater. By matching the risk profile of the plan to each client's particular circumstances the long term improvement in their ultimate benefits should be considerable. Our AIMS risk management system seeks to do just that. As part of our initial analysis we will carry out a risk assessment of the client, taking account of factors such as his/her age, when they intend to retire, whether they are more likely to buy an annuity or use income drawdown etc. Having carried out this analysis we will design an investment strategy specifically to match their needs. Ongoing Monitoring Of course clients needs and objectives are subject to change. Apart from anything else each year that passes puts them one year nearer to buying an annuity and the risk profile needs to be adjusted accordingly. They may also change their plans about the timing of their retirement or alter their attitude to risk. That is why we need you to arrange for your clients to complete a profile update every year so that we can continuously match the investment strategy to their changing needs.
Based on the updated client profiles our monitoring system will identify opportunities to consolidate gains and to adjust the balance of investment to take advantage of changing market conditions. Each holding is monitored quarterly for "capture opportunities" which allows us to take full advantage of the free switching to enhance the long term performance of the plans. Improving The Quality And Value Of Your Clients' Retirement Benefits Through risk based investment strategies your clients will benefit from improved performance that will ultimately result in higher benefits in retirement. Improving the returns by just 2% p.a. would result in benefits being over 30% higher after 15 years. Bearing in mind that most investors with funds of over £100,000 at retirement are likely to defer buying an annuity this enhanced performance can continue through retirement until the benefits are eventually bought out. When clients are in the approach to retirement we provide enhanced services through our INTELPEN retirement modelling systems. Using this technology we are able to create a virtual financial environment in which clients can plan their retirement years with ease. The resulting computer based models are stored and updated annually to give the investor a continuous picture of where they are and how the future looks. The system allows clients to look at any range of & "what if" scenarios to enable them to strike an appropriate balance between their short, medium and longer term needs. Our Relationships With IFAs Unlike product providers we undertake the compliance responsibility for the establishment and ongoing management of the pension plans. Our fees are offset by the added value we can offer through our specialist technology and expertise. By using technology coupled with top quality funds available at highly attractive charges our services provide the added value at a cost that investors are very comfortable with. This leaves scope for you to receive remuneration for sourcing the solutions for your clients and providing valuable input thereafter to enable us to keep our advice in context with the client's wider financial planning for which you remain responsible.