With Profits  

Phoenix Life drops with profit exit fees

Phoenix Life drops with profit exit fees

Phoenix Life is offering 1,000 members of the National Provident Life (NPL) fund the chance of switch from the with profits fund they are currently invested in to a unit linked fund.

This change will be free of market value reduction (MVR), but the savers will be giving up any future guarantees on their policy.

An MVR is a reduction to the amount paid out from a with profits policy, which works to ensure that all policyholders receive a fair share of the fund and that those who stay in the fund are not disadvantaged.

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This pilot scheme was prompted by the introduction of pension freedoms in 2015, which now allows savers to access their pots when they reach 55.

These selected members will have the choice to remain with the with profits fund and continue to benefit from the guaranteed annual returns, or transfer the money to a unit linked fund MVR-free, which offers greater flexibility should they wish to access funds before their selected retirement date, the provider said.

A spokesperson for Phoenix Life said: “We are aware that an MVR may deter customers from using the pensions freedoms as part of their retirement planning. This pilot scheme is about offering customers a choice.

“They can keep the guaranteed growth that they have already earned but if they want to access pensions freedoms, they can do so without an MVR being levied.

"We believe this will be attractive to some, but not all customers."

The provider is mailing all customers in the pilot, outlining in plain English what the offer entails and who might be interested in it.

The spokesperson said: “We have strongly recommended they seek independent financial advice before taking any action.”

Customers have 10 weeks to consider the offer.

If customers take no action, no changes will be made to their policy and it will remain in the with profits fund.

“Should the pilot be a success then we will consider rolling this out to other policyholders,” the spokesperson added.

Alan Chan, director and chartered financial planner at London-based IFS Wealth & Pensions, said this can be a fair offer, but it isn’t going to be right for everyone.

He said: “This is because the guarantees will be lost upon transfer, which is a clear disadvantage.

“Sometimes these guarantees are quite complicated and come in various forms, such as guaranteed annuity rates, guaranteed cash sums, or annual returns and so on.

“All of this needs to be weighed up with the benefits obtained by the pension flexibility the client is after.

“MVRs typically do not apply on the policy when the member reaches the selected retirement age, so the client might be better off just postponing decisions until then."

According to Mr Chan, the other issue the clients will face is “deciding which unit-linked fund to switch to, and they will need to ensure the funds they choose are right for their risk appetites and reflect their needs in retirement”.