News/Events

Don't be lulled into false sense of security over MVR [28th January 08]

I must applaud one of my fellow IFAs and writer in this paper, Christopher Marsham for his article in Saturday’s paper last highlighting the pitfalls of With Profit Investment Bonds. These savings plans were very popular and indeed successful until the fall in the Investment Markets in 2001 when the dreaded Market Value Reduction (MVR) jumped suddenly out of the woodwork. This enable the Insurance Company to withhold some of your money to, so say, benefit the remaining members of the Fund. In 2007, many companies have not only removed the MVR entirely e.g. you would get the full value on encashment but also increased their returns, both reversionary and terminal bonuses. This applies to Companies such as Prudential, Norwich Union and Legal & General. But, as Chris was saying, do not be fooled or lulled into a false sense of security as values can change for the worse and quickly. Markets have been falling and the MVR can be re-introduced at the drop of a hat or increased if in place already.

I would like to also bring to your attention With Profit Pension Plans and especially any readers who have plans maturing shortly and/or may not wish to take benefits immediately. Please read the small print carefully as Insurance Companies do have different ways of dealing with MVRs. You may have, for instance, a MVR free window for up to a month after you normal retirement date but if you have not taken benefits during this time or switched to another fund, the dreaded MVR could be implemented at any time during your “late” retirement.

I have a client who has an old Eagle Star With Profits Personal Pension Plan (now part of the Zurich Group) and they only allowed him an MVR free date of his normal retirement date e.g. ONE DAY only on his 60^th Birthday. Not only that, but because he did not give a decision by that day, his pension date has been moved forward by 5 years which will be his next MVR free date. Prior to his age 60, the MVR was 17% even though his plan started in 1992 and is again 17% as in late retirement. Furthermore my client had £75,000 placed in his pension fund in 2000 due to mis selling advice as originally he had been a member of a final salary scheme. However, Zurich is still taking 17% of this part of the fund!

If you have a pension plan linked to the With Profits fund, then please review it NOW and especially if you are with a company no longer taking new business.

Have you used your 2007/2008 ISA allowance? If you do not use your full allowance within the relevant tax year you lose it, so if you have money to invest you have until the 5^th of April to take advantage of your ISA allowance. Do not leave it until the last minute; your application will need to be processed by this date so you need to act quickly.

Speak to an IFA. Langtons are offering all readers a free initial assessment of Investments and Pensions until January 31^st – call to book your review today or visit our website for details.

This article was written by Langtons - Published in the Western Morning News, This is Money, 28th January 2008