Getting out of expat/offshore pensions

[aragoto]

Hi all - my first post here, though I've followed discussions on Facebook and contributed here and there.

I'm hoping this is the right category for this question, which is about expat pension investment schemes (nominally referred to as life insurance policies in some cases) offered by insurers such as Friends Provident and Generali.

I currently have two policies that I've been paying into for about 10 years, of the kind politely referred to as "legacy" - i.e., they offer actively managed funds that charge substantial fees. Both run for a long period (one began in 2011 and ends in 2036, the other from 2005 to 2030).

I have two issues with the products I'm invested in currently: (1) Returns are dreadful. One policy is down 20%, the other up 15%. (2) Both have strong incentives not to close out of them early, in that they amortize fees across the life of the policy and surrender value is therefore well below the current valuation (this equates to something like a USD15k hit on the larger policy, which is worth about USD400k, and a few thousand plus the loss of a "loyalty bonus" on the other, I believe).

Given what I know now about active vs passive investing (oh, for a time machine!), I'm looking to get out of both policies and either reinvest with AES (or another outfit that gives expats access to index funds, if there is one) or into a Monex account in Japan. I'm assuming the tax implications of doing the latter will be fairly minimal, since the gains on the policy with a positive return (minus the surrender haircut) will be minimal and treated as 解約返戻金 on an insurance policy (i.e., I only pay tax on surrender value minus contributions), and the other is in the red.

Has anyone else had experience of cancelling this kind of policy partway through, and would you recommend it? (I'm inclined to think that another 10-20 years of index investing will quickly put me ahead of the returns I'd be generating with the status quo.)

Also, has anyone tried complaining to the insurance firms and seeking to have them waive the surrender fees, given that these products have now been discontinued after the FCA in the UK effectively banned them for acting against consumer interests?

Sorry for the long post - and thanks in advance for any advice.

[RetireJapan]

Hi aragoto

Welcome! You're in exactly the right place. RetireJapan is founded precisely to combat this kind of thing (see the first blog post ever for details), and a few of our members have had similar experiences. Here's an old thread on the subject: http://www.retirejapan.info/old-forum-a ... g-4035240/

Anyone else?

[aragoto]

Thanks - I've been reading your Facebook posts for a while and gotten a good deal of info from them.

The link to the old forum thread gives me a 500 server error - is there another way to access it?

[goodandbadjapan]

I had one and also paid into it for about ten years. It was a 15 year plan, though, so I was closer to the end than you and hence any potential penalties would be less. I made a partial surrender about a year ago and was able to cash in most of the policy then for no penalty. If I had cashed it all in I would have been hit by some penalties. I then had a small amount left but would have to continue paying in until completion to avoid penalties. I decided it wasn't worth it and just cashed the remainder in earlier this year. I lost a bit in penalties but overall ended up with a bit more than I had paid in. Think I had paid in about 13 million yen and got about 14 and a bit out. I am glad I got out and would certainly advise it if you even break even as you can surely make that money work better for you once it is out.

It wasn't a good investment and as you said, oh for a time machine, but it still made more than it would have done had I not invested at all, so I try not to get too bothered about it!

[adamu]

The link to the old forum thread gives me a 500 server error - is there another way to access it?

Maybe a temporary glitch - working for me now.

[ricardo]

Are you sure they’re pension schemes, not just life assurance policies? Pension schemes should end when you retire, not on a fixed date before then...

You’ll have benefitted from tax relief when working in the U.K. at your highest rate if they were pension schemes. This is significant in terms of their value and the effect of the contributions you make.

Sounds to me like they’re just crap life assurance products in expensive funds. I’d surrender them, take the hit, and start again with the money in a real pension scheme in Japan where you can get tax relief on your contributions.

[aragoto]

Are you sure they’re pension schemes, not just life assurance policies? Pension schemes should end when you retire, not on a fixed date before then...

Yep - they're structured as life assurance, though they're clearly designed as fixed-term investment products.

You’ll have benefitted from tax relief when working in the U.K. at your highest rate if they were pension schemes. This is significant in terms of their value and the effect of the contributions you make.

Never worked in the UK. I don't pay tax on them in Japan, though the (relatively) recent requirement to disclose overseas assets above a certain amount suggests the Japanese government may want to take a cut at some point. I do get air miles by paying my contributions via a credit card.

Sounds to me like they’re just crap life assurance products in expensive funds. I’d surrender them, take the hit, and start again with the money in a real pension scheme in Japan where you can get tax relief on your contributions.

I already have a defined-contribution pension through my employer, which I don't appear to be able to pay any more into, so I think my only additional route after maxing the NISA is iDeCo, which would be a fairly trivial amount.

I'm leaning toward cashing out of the larger product, which will involve a moderate hit, and keeping the smaller one.

I've paid USD110k into the latter, it's valued at USD89k, and the surrender value is USD72k, so I'm not sure the hit is worth taking. It will also be eligible for a USD7,500k bonus in mid-2021. I think my best bet is to align the fund selection with my investments elsewhere (and minimize their cost), and see if investing through another business cycle will bring the performance back toward breakeven (or hopefully above).

[concerned]

"Also, has anyone tried complaining to the insurance firms and seeking to have them waive the surrender fees,"

Yep, I tried this for a period of six months, told them I would telll as many people as possible, go to the media, they did not care...

I had money for 10 years with Friends Provident from 2005, to 2015, paying in every month, (from 2008 to 2015 stocks went up a lot) I made no profit, in actual fact when I paid my surrender penalty of about 10% of the funds amount, I got less money back than what I put in..

The surrender penalty is used to pay that friendly financial advisor who sold you this product...

The yearly fees on this product are not fully disclosed and are very high. Surrendeing the max amount and leaving some with Friends provident will also not work, as they will charge high fees on the remainder. Your best bet is pay the penalty and withdraw all your money...

[Zoomtokyo]

You could shift more or all of your holdings in the product into well-chosen index funds and see what happens. I did this about 3 years ago, and my returns are now over 30%, from being around zero. Course I was lucky with the timing, given the bull market.

I dont think advisors like their clients holding index funds because the clients quickly learn how much their fees really are and how useless their advisors are. I've had to push to make those funds a bigger and bigger part of the portfolio.