Frozen Pensions and Alternative Investment Options

Strategic Insights -

Marion Thomas's life was turned upside down when Equitable Life, the provider of her with-profits AVC, imposed a 10% levy on her pension fund. Thomas had been contributing £160 a month to her £20,000 AVC for 20 years, only to be told that she would have to stop making payments if she wanted to access her funds. She has since frozen her AVC contributions and is exploring alternative investment options. Despite being 54, Thomas is still considering early retirement, but she needs to find a new investment that will complement her frozen Equitable AVC.

Key Takeaways:

  • Marion Thomas's with-profits AVC with Equitable Life is frozen due to a 10% levy imposed on her pension fund.
  • The imposition of the levy has forced Thomas to stop contributing £160 a month to her £20,000 AVC fund.
  • Equitable Life is now offering alternative AVC options from Eagle Star, including a with-profits fund, a managed fund, and higher-risk funds.
  • Thomas is considering alternative investment options to supplement her frozen Equitable AVC, including stakeholder pensions, which will be available from April and offer low charges and a 25% tax-free lump sum at retirement.
  • Thomas says she would prefer a slightly riskier investment option that will complement her frozen AVC, citing a desire to invest in gilts, which offer a 1% lower return but more secure investment.

Statistics:

  • Thomas's with-profits AVC fund with Equitable Life is worth £20,000.
  • Thomas has been contributing £160 per month to her AVC fund for 20 years.
  • The 10% levy imposed on Thomas's pension fund would reduce her investment returns by £2,000.
  • Stakeholder pensions will be available from April, offering low charges and a 25% tax-free lump sum at retirement.
  • John Briggs advises that a free-standing AVC (FSAVC), outside the context of an employer, will have higher charges and be inflexible.

Sources:

  • Thomas, Marion
  • Chartwell, Bath-based financial advisers
  • Equitable Life
  • Unilever Best Foods
  • Eagle Star
  • PJ ( article source)