Morningstar's "Perspectives" series features investment insights from third-party contributors.
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The FCA recently announced it is no longer looking into the actions of the Police Mutual as part of its review of how longstanding customers are treated. Its investigations continue into the remaining five firms that fall within the scope of the review. However, this latest announcement should provide people with a timely reminder of how important it is to keep an eye on products they have held for some time. Those that may once seemed like a perfectly healthy choice might have turned nasty while their back was turned. We reveal five zombie products to keep an eye out for:
Child Trust Funds
At one stage, 6.3 million children had child trust funds (CTFs), but with the introduction of the Junior ISA in November 2011, they have somewhat fallen off the radar. The Treasury no longer publishes statistics on CTFs, so we have no way of knowing how many people have transferred across to Junior ISAs. What we do know, is that in some cases, CTFs have lower interest rates, are more expensive, and have less choice than Junior ISA options.
With Profits Generally
Tax inefficient, opaque, unclear charges and market value reductions when you need them least – what is to like? However, before dispatching this particular zombie, investors need to consider the costs – including potential market value reductions, plus the tax implications of the move.
They should also check whether old with profits policies have hidden charms such as valuable guaranteed rates of return before transferring or cashing in.
Old Personal Pensions
Older pensions, particularly those set up prior to 2000, charge more for less, compared to modern versions. It means pension savers should seriously consider escaping the clutches of this zombie. Statutory changes to early exit charges mean a transfer is more viable now. Early exit charges for anyone transferring after age 55 are capped at 1%. This came in for personal pensions from 31 March 2017, but will apply on occupational pensions too from 1 October this year.
Again, it’s worth people looking before they leap. They may be entitled to benefits that were offered within some of these older pensions - such as guaranteed annuity rates.
Instant Access Cash Savings Accounts
Around 80% of people have not reviewed their instant access cash account for three years, leaving their hard earned savings to lose value once inflation is taken into account. Waiting around for a Bank of England base rate rise will prove an extremely long game. There are better savings rates on the market than there were a year ago, but many struggle to pay a real post-inflation rate of return. Fixed rate accounts offer improved rates, and the stock market should be considered for some of your longer-term financial goals.
Funds Bought Direct from a Fund Group
Investors don’t have to look far back to see a time when annual management charges for funds bought direct from a fund group were double those available through a platform. In some cases, these legacy funds remain, charging 1.5% a year, but if transferred to a platform and then converted to an unbundled share class, investors could halve the fees, at no cost and with no tax to worry about.
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