Your browser isn't supported
It looks like you're using an old web browser. To get the most out of the site and to ensure guides display correctly, we suggest upgrading your browser now. Download the latest:

Welcome to the MSE Forums

We're home to a fantastic community of MoneySavers but anyone can post. Please exercise caution & report spam, illegal, offensive or libellous posts/messages: click "report" or email forumteam@.

Search
  • FIRST POST
    boddger
    Section 32 buy-out with GMP
    • #1
    • 13th Oct 08, 4:26 PM
    Section 32 buy-out with GMP 13th Oct 08 at 4:26 PM
    I wonder if some IFA or knowledgeable person can clear up some confusion I have about a section 32 buy out pension with GMP. I will take financial advice closer to retirement but that’s in a few years time.

    I phoned my pension company twice last week and received conflicting information about my pension plan which consists of with-profits and unit-linked policies. One person said that both policies had lost value because of stock market falls, the other that neither had because once annual bonuses were added the policy value could not decrease. Which, if any, is correct ?

    Secondly, this plan apparently must pay a guaranteed minimum pension at age 65, regardless of what my fund value has reached. My Normal Retiring Date, as stated on the policy, is 60, which is the age I wish to retire. I have received a couple of illustrations over the term of this plan that has suggested I may receive something like half the GMP at 60. Last week I was told it might pay zero between age 60 and 65. Is this correct and is it because of the ‘crash’ ?
    How do they calculate the pension between 60 and 65 ?

    I believe these GMP pensions are like gold dust nowadays and it makes financial sense to stay with it, but I would rather have a few thousand along with my present employers’ pension at 60, than waiting until 65 for the GMP, due to ill health. Can this be converted into something else and if so what about the SERPS element from my previous employer ? I have tried to transfer into present employers’ scheme but it was rejected due to GMP. Would any other company take this GMP on, seems doubtful.

    A lot of questions I know but any help would be appreciated.



Page 1
  • MikeJones
    • #2
    • 13th Oct 08, 5:14 PM
    • #2
    • 13th Oct 08, 5:14 PM
    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.
    Last edited by MikeJones; 13-10-2008 at 5:48 PM.
  • EdInvestor
    • #3
    • 13th Oct 08, 5:45 PM
    • #3
    • 13th Oct 08, 5:45 PM
    Can this be converted into something else and if so what about the SERPS element from my previous employer ? I have tried to transfer into present employers’ scheme but it was rejected due to GMP. Would any other company take this GMP on, seems doubtful.
    Originally posted by boddger

    An S32 can be converted into a personal pension.The GMP will morph into "protected rights". These days there is little difference between protected and unprotected rights pensions. Both can pay out 25% tax free cash for instance.

    You need to compare the "transfer value" of the pension fund if you decided to do this, and the amount of annuity it would buy, compared with the GMP amount that your provider must pay you at your retirement date, regardless of the size of your fund.

    The annuities section of this site will give you an idea:

    www.fsa.gov.uk/tables

    Don't forget to take into account the cost of spouse benefits and any index linking attached to the GMP.

    A further point to take into account is that if you take it at 60, you will receive 5 more years of pension, albeit that it may be a lower amount.How long will it take to 'catch up' if you wait for the GMP pension to kick in?

    With a PP (and sometimes with an S32) It is also possible to choose income drawdown rather than an annuity, which may be a better plan if you think you may die young, as it enables you to leave a cash lump sum to your spouse.Under drawdown you leave the money invested and take an income, which can be up to 120% of the annuity rate.
  • boddger
    • #4
    • 13th Oct 08, 8:59 PM
    • #4
    • 13th Oct 08, 8:59 PM
    Many thanks to Mike Jones and EdInvestor for your prompt and thought provoking replies.

    I have checked the wording of the policy and in lay terms it states that, in my particular case, between 60 and 65 a reduced pension may be payable.

    Using the fsa tables it would seem, when trying to compare like for like, that my fund will not be sufficient to generate a pension at 60, four years from now. A month ago the total value was approx 100000, biased towards the unit-linked fund, with a possible terminal bonus for with-profits. What I don’t understand is why they continue to give an illustration of an approx half value GMP at Retirement Date of 60 if it’s obvious that the fund will be insufficient. The GMP is 8500 at 65. Using the fsa tables even 100000 at 60 produces, like for like, about 25 percent less than the GMP, which is not as bad as I feared, ironically with my pension company. A personal pension transfer maybe the answer, although the charges and possible penalties will no doubt be high.

    Anyway, who can say what pension funds and annuity rates will be in four to five years time, considering the turbulence occurring at the moment and a possible long lasting recession.

    This is indeed a complex subject and sometime soon I will most certainly have to consult an experienced and section 32 knowledgeable IFA.
  • MikeJones
    • #5
    • 13th Oct 08, 9:32 PM
    • #5
    • 13th Oct 08, 9:32 PM
    Hi boddger,

    As EdInvestor says, the FSA annuity tables may be useful. But, be aware as the rates they provide are often out of date.

    As a complete guess-timate (so, don't hold me to it), I reckon you'd need anywhere between £190,000 - £225,0000 (or even more, depending upon the then current economic climate) at age 65 to provide a Revalued Guaranteed Mininum Pension (RGMP) of around £8,500 p.a. (9 years from now).

    The RGMP will need to have a provision for a 50% widow's pension and, if you earned any of your GMP in respect of contracted-out service after 5th April 1988 that part of it must have pension increases after State Pension Age of 3% p.a.

    So, if you stay where you are, as a miniumum you'll get a RGMP of £8,500 p.a. 9 years from now plus possible terminal bonus plus additional potential investment return. Before you consider any other alternative, what would you describe your attitude to risk as in particular with regard to THIS specific pension provision (rhetorical)? That is one of the main issues you need to think about if you consider transferring.

    Kind regards,

    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.
  • boddger
    • #6
    • 14th Oct 08, 9:58 PM
    • #6
    • 14th Oct 08, 9:58 PM
    Mike

    I don’t think my problem concerns an attitude to risk but to a dilemma that I, and no doubt many other pension plan holders, including section 32 buy-outs, now face.

    I transferred into a buy-out plan with the expectation of being able to retire at age 60 with an adequate pension. Twenty or even fifteen years ago this type of pension was a fairly safe bet and had a reasonably chance of accruing a fund sufficient to generate an annuity of the GMP value at age 65, perhaps even at 60. Unfortunately the goal posts in the guise of increased life expectancy and reduced annuity rates have now moved. I seem to remember that twenty odd years ago a fund of roughly my value would produce a annual pension of ten thousand or more, certainly enough to cover the GMP. In a way the pension plan has probably fulfilled its purpose, but as you pointed out, it is no longer enough and needs to be double in size. Needless to say the possible scenario of zero pension between ages 60 and 65 was never brought to my attention when I took out the policy.

    My problem is that I will probably have to retire at 60 from my present employment, for various reasons, and will have very little chance of further meaningful or rewarding work elsewhere. I am aware of the implementation of age discrimination and changes to retirement age, but realistically I will be retired. My options seem to be: remain with the present policy and hope I receive something between 60 and 65 which is highly unlikely; secure part-time employment, again unlikely; transfer the section 32 buy-out plan into a personal pension, which regretfully now seems the most likely. I am fortunate that I will receive a pension from my present employer but on its own probably insufficient nowadays.

    I thought that if I remain with the buy-out policy until age 60 NRD and then transferred into a personal pension there would be little or no risk. A loss of the guarantee, loss of bonuses and a considerable difference between section 32 and personal pensions admittedly, but to what risk do you refer ? I would love to stay with the section 32 until 65 but it doesn’t seem feasible.

    Boddger
  • Gissajob
    • #7
    • 3rd Aug 10, 10:23 PM
    • #7
    • 3rd Aug 10, 10:23 PM
    I have just read the questions and answers about a S32 plan [admittedly posted a while ago] and feel I need help with my situation.
    Transferred approx £7600 to an S32 plaln in 1985 [can I say the company?] and forgot about it until last year when I was 64 and retirement became an issue. I understood this was the SERPS element from my previous non-contributory scheme.
    I will be 65 in 3 weeks time and have asked my provider to explain the figures received in the 'pack' they sent. Just found out my request was not actioned and they have to start again.
    Further enquiry today resulted in the ''help desk'' saying '' the figures I have been given might be wrong '' and they need to check.

    Firstly the tax free cash shown in their Q2 is under threat of being removed and they cannot tell me the rules applicable to S32 plans set up before 1988 for the revaluation index.
    I don't have long before I have to decide so they can set up the DD for this Aug 2010 and now am unsure what basis to chose as if I miss Aug that will be gone for ever.
    I am still working up to Dec 2010.
    Fund is only £60K
    The GMP produces £4600 pa non escalating- but is showing £10K TFC
    Q1 was non escalting but level £5600pa no TFC.

    Help please
  • MikeJones
    • #8
    • 5th Aug 10, 2:33 PM
    • #8
    • 5th Aug 10, 2:33 PM
    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.
    Last edited by MikeJones; 05-08-2010 at 2:36 PM. Reason: spelling!
  • Huba
    • #9
    • 30th Sep 10, 10:14 AM
    • #9
    • 30th Sep 10, 10:14 AM
    Hi All

    I'm trying to find out if I've lost my GMP for ever or if there's still a chance to recover it.

    Back in 1990 I was persuaded by an insurance salesman to convert my BT plc final salary pension into a Personal Pension (this was after I had left BT). What I didn't realise at the time was that this meant that I had surrendered my GMP.

    Of course, over time, given the appalling performance of my pension provider, the value of my pension fund is going to provide a pension which will be only a fraction of the amount the GMP would have provided at retirement age (60).

    I'm trying to get the GMP reinstated but with no luck so far. The pension was formally reviewed in 2000 when it was found that no compensation was due. I have since appealed to the Ombudsman who has not supported my case.

    The most galling thing is that my husband also converted his final salary scheme with the same insurance adviser in 1989 but he has a "Section 32" plan which means he DOES have a GMP!! Neither of us realised any of this until recently. We are bemused and feel cheated by the adviser and the pension provider. Doea anyone know if there is anything else I can try to get justice?

    Thanks for your advice.
  • dunstonh
    We are bemused and feel cheated by the adviser and the pension provider. Doea anyone know if there is anything else I can try to get justice?
    The pensions review is now considered to have been slightly consumer biased with hindsight. Indeed the person that set up the review felt that too many consumers got paid redress when they shouldnt have. The FOS today are slightly consumer biased as they dont just consider rules and law but also fairness. So, with that in mind, you have had a complaint rejected by the seller and the FOS. In their eyes there was no wrong doing. So, why do you think it was wrong when two other complaints handlers think there was no wrong doing? What was the reasons that the FOS felt nothing was wrong?

    You are timebarred from legal action so there is nothing else you can do.
    I am a Financial Adviser. Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from a Financial Adviser local to you.
  • enrobso
    Hello all

    I've just reached 65 and have a section 32 buyout plan with GMP.
    The plan is currently worth £70,000.
    I've heard that fron April 2011, assuming one has £20.000 in other pension income, it will be possible to draw out the whole of the £70,000 in cash.
    Can anyone confirm whether this is true?

    Many thanks
  • dunstonh
    I've heard that fron April 2011, assuming one has £20.000 in other pension income, it will be possible to draw out the whole of the £70,000 in cash.
    Can anyone confirm whether this is true?
    No its not true.
    I am a Financial Adviser. Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from a Financial Adviser local to you.
  • enrobso
    Thanks for the quick reply. What I meant to ask was, if my other pension income is more than £20.000 per annum, will I be able to withdraw my section 32 fund of £70,00 in cash rather than have to take an annuity?
    I believe this will be the case for other annuity based products.
    Hope you can help me on this one.
  • dunstonh
    What I meant to ask was, if my other pension income is more than £20.000 per annum, will I be able to withdraw my section 32 fund of £70,00 in cash rather than have to take an annuity?
    No you cant draw it all in cash. The new rules for those over 75 and amended rules for those under 75 do not allow for 100% cash lump sum. The £20k secured income just allows for a greater amount of income to be withdrawn on the unsecured income option compared to those who have less than £20k a year secured income.

    Also, with GMPs it is not unusual to also find a guaranteed annuity rate. So, check that before you decide to do any transfer. Also, the transfer value may be significantly lower than than the GMP. Again, check that.
    Last edited by dunstonh; 04-01-2011 at 2:53 PM.
    I am a Financial Adviser. Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from a Financial Adviser local to you.
  • casey junior
    Hi Gissajob,

    Within a Section 32 Buyout the primary requirement is to provide the Revalued Guaranteed Minimum Pension at State Pension Age.
    Originally posted by MikeJones
    Sorry, but I've just seen this post, and I dont really want to go on flogging a dead horse!

    Does this mean that every sec 32 has to have a GMP, as I have said in my previous posts that mine contains no guarantees of any sort except the sum assured?
  • nrsql
    I'm sure you're going to be asked when you took it out and who it's with.
  • casey junior
    I'm sure you're going to be asked when you took it out and who it's with.
    Originally posted by nrsql
    Surely these aren't relevant as MJ states" Within a Section 32 Buyout the primary requirement is to provide the Revalued Guaranteed Minimum Pension at State Pension Age."?
    No mention of provider or timescale.
  • casey junior
    Surely these aren't relevant as MJ states" Within a Section 32 Buyout the primary requirement is to provide the Revalued Guaranteed Minimum Pension at State Pension Age."?
    No mention of provider or timescale.
    Originally posted by casey junior

    Can I ask again, "Is Mike Jones correct in saying that in all Section 32 Buyouts the primary requirement is to provide the Revalued Guaranteed Minimum Pension at State Pension Age"?
  • Swan
    please click the Spam button on wowgold's posts folks
  • amersall
    please click the Spam button on wowgold's posts folks
    Originally posted by Swan
    Have done, and all those on other threads.

Welcome to our new Forum!

Our aim's to save you money quickly and easily. We hope you like it!

Forum Team Contact us

Live Stats

1,578Posts Today

6,598Users online

Martin's Twitter