Section 32 buy-out with GMP

Hi boddger,

Guaranteed Minimum Pension at State Pension Age
The Section 32 Buyout provider must provide you with your Revalued Guaranteed Minimum Pension at State Pension Age. This was an absolute minimum provision when you transferred your pension to the product provider.

Whilst, as you have advised, your Normal Retirement Date is earlier than your State Pension Age, if there is insufficient 'money in the pot' within your Section 32 Buyout policy at that age (or any age earlier than your State Pension Age) then the product provider has no obligation to pay you a pension at your NRD. This is because whatever fund is available in your pot must be used in the first instance to provide you with your Revalued GMP. Anything else left in the pot after paying that can be used for a cash lump sum or more pension (or both).

The product provider may be able to give you a smaller pension from age 60 along with annual increases up to your State Pension Age, but those increases must bring your pension up to your Revelaued Guaranteed Minimum Pension at SPA. I'm not too sure that this would be an option with the majority of Section 32 product providers though. It would depend upon the policy wording.

With Profits and Unit Linked
I need to be careful here, because your post has given limited information about the Section 32 Buyout (who it is with, when was it purchased etc) and there are some differences between different Buyout providers products.

However, I suspect you have one Section 32 Buyout with one product provider and that your original transfer value was split between a with-profits fund and a unitised (or unit linked) fund.

The with-profits fund will have been allocated (theorically) with enough units initially that with additional bonuses would have grown to a 'pot' big enough to provide your with your Revalued GMP. Usually a with-profits fund increase because bonuses are added and normally once added the bonuses are secured. (There are circumstances when with-profits funds can reduce such as on transfer or drawing the policy earlier than was intended).

The other unitised element of your policy would have been invested in funds of your choice, such as a Managed, Property, Equity or similar type fund (I'm assuming this, because otherwise I'd have expected 100% of the fund to have been invested in with-profits). Clearly, most of these types of fund can rise and fall with economic conditions.

Transferring your Section 32 Buyout
It is possible to transfer your Section 32 Buyout to another registered pension scheme. This is a complex situation though, as you will be considering giving up the guarantees on your GMP as one or more of the alternatives (such as transferring to a Personal Pension Plan where your GMP would be converted into Protected Rights). If you ever join a Public Sector scheme, it may be possible for you to transfer the Buyout into that scheme (as with any other employers' pension scheme) but as you have found out once already, an employer can (and very many will) turn down your request to transfer-in because of the GMP obligation.

It makes good financial sense when considering any financial transaction, such as transferring a pension, to seek the advice of an experienced IFA.

I hope that helps.

Mike Jones

I work in the field of Pension Education and Pension Guidance in the UK. I am a current member of the Specialist Pensions Forum as well as being a Voluntary Adviser for The Pensions Advisory Service. I work with scheme members, employers, trustees, scheme administrators and advisers on most things to do with employer sponsored pension schemes. The views expressed by me in this thread are my personal opinions. You should seek professional advice from an appropriately experienced and qualified adviser. I am not an IFA.

Hi Gissajob,

Within a Section 32 Buyout the primary requirement is to provide the Revalued Guaranteed Minimum Pension at State Pension Age.

If you want us to check out the figures we'll need to know:

1. Your Guaranteed Minimum Pension at the Date of Leaving Service (pensionable service).
2. Your Date of Leaving pensionable service from your former employer.
3. The rate at which your GMP increases (it's called the revaluation rate).
4. The date of your 65th birthday or your date of birth.

Items 1-4 will be written on the Section 32 Buyout policy document. Do you have the original to be able to refer to?

The amount of the fund value held in the Section 32 Buyout is like a 'pot' and it will be used first to pay your Revalued Guaranteed Minimum Pension (which will include a mandatory 50% spouse's pension on your death, and which as you have confirmed because you left before 6th April 1988 there will be no mandatory pension increases in payment on the RGMP).

Example, your 'pot' is worth £60,000 and the pension provider requires £58,000 to pay the RGMP to you, then you can take the remaining £2,000 and either:

(i) convert that to further pension or,
(ii) convert that to a tax free cash lump sum (now called a 'pension commencement lump sum') AS LONG AS it within the limits prescribed by HMRC*
(iii) or a combination of (i) and (ii) - i.e. a lump sum and more pension.

If the pension provider only needs £52,000 to pay you your RGMP, you'll have £8,000 to 'play around with'.

If, however, the fund value is £60,000 and the product provider needs more than £60,000 to pay the RGMP, it will have to use its own reserves because it MUST pay you your RGMP in full at State Pension Age. Under these circumstances, there would be no 'extra' amount in the 'pot' to enable you to take a tax free cash lump sum.

*Incidentally, the Inland Revenue (as it was then, but is 'HMRC' now) maximum lump sum would have been calculated when the Section 32 Buyout plan was taken out and will be on the policy document too.

Hope that helps?

Mike

I work in the field of Pension Education and Pension Guidance in the UK. I am a member of the Specialist Pensions Forum as well as being a Voluntary Adviser for The Pensions Advisory Service. I work with scheme members, employers, trustees, scheme administrators and advisers on most things to do with employer sponsored pension schemes. The views expressed by me in this thread are my personal opinions. You should seek professional advice from an appropriately experienced and qualified adviser. I am not an IFA.