Section 32 transfer valuation
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gettingolder_2
Posts: 19 Forumite
Can anyone explain how the transfer value of a Section 32 policy is calculated when the policy reaches the official pension date. My pension provider has given me a value if I want to purchase an annuity from Canada Life. However I want to transfer to a SIPP drawdown scheme. My provider has quoted a value about 12% less than purchasing the annuity. They explain they are able to do this based on their own investment return expectations rather than the current annuity rates. Can this be justified under the rules? How I confirm this is fair and reasonable?
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Does the S32 have a GMP?
Is it at scheme age or earlier?Can this be justified under the rules?
If its linked to a GMP calculation then yes.
Ask your IFA to verify the calculation. Indeed, the SIPP provider may actually require an IFA to sign off on it anyway if there is GMP. Even if you are giving up the GMP.How I confirm this is fair and reasonable?I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.0 -
Thank you for responding to my enquiry.
The policy does have a GMP and it has now reached the scheme date when the GMP option comes into effect.
I have been offered an annuity at the guaranteed rate from Canada Life or from my pension company and there is a value quoted to purchase this annuity from Canada Life. This is not my preferred option. A different value has been quoted (about 12% less) if I want to transfer to a SIPP drawdown scheme.
This sum is not sufficient to purchase the guaranteed pension from any provider in the open market.
I would like to know how to contest this value or whether there is some wording in the Section 32 rules that allows my pension company to speculate on its future investment returns and justify this lower value.
My current IFA was not permitted by company rules to provide any recommendation because of the complexities of the Section 32 legislation.0 -
I would like to know how to contest this value or whether there is some wording in the Section 32 rules that allows my pension company to speculate on its future investment returns and justify this lower value.
You cant contest it. It is how it works. A GMP requires the insurer to make up the fund value to meet the GMP requirements if you commence the pension with them. If you choose to transfer the pension you will lose the GMP and get the lower transfer value.I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.0 -
My current IFA was not permitted by company rules to provide any recommendation because of the complexities of the Section 32 legislation.
Find one qualified to advise you?
http://www.unbiased.co.uk/how-to-use-the-professional-adviser-search-on-unbiased-co-uk0 -
You can question whether it's fair and reasonable.
But the scheme promised you something X years ago that it didn't realise it couldn't really afford to do.
But it was set in stone, so they have honoured it.
The true value of the underlying investment, however, is 12% lower than the comparative value of the 'promise to pay'.
If you want to transfer the whole pot, they can only offer you what they've got.0 -
That's right, you need someone who is (at least) a 'pension transfer specialist' and there are plenty.0
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It's quite interesting actually. Some actuaries tend to offer enhanced transfer values when the fund is running dry. Long term they see it cheaper to get rid of it than to pay the benefits promised.
EDIT: And i suppose this isn't true in this case because its a S32 rather than a regular Defined Benefit, Final Salary scheme.0 -
I would just like to highlight one point - if the policy runs to the Benefit Date defined in the policy the insurer has to honour the guarantee of the GMP even if you transfer. It is only if you transfer before the Benefit Date that the insurer has no obligation. In this case it is the receiving company that has to decide whether it can afford to honour the ongoing GMP commitment.
The question I was asking was what rules apply to how they arrive at the final transfer value. The insurer has calculated it at 12% less than the cost of buying the annuity. Perhaps this is the typical margin made when an annuity is purchased?
PS My IFA is one of the UK's leading SIPP providers and would only accept the transfer on an execution only basis.0 -
gettingolder wrote: »Perhaps this is the typical margin made when an annuity is purchased?
No it's nothing to do with the cost or buying an annuity. It is purely down to the guarantee that you have with that insurer. However only that insurer has to honour it.
Why do you want to transfer it and lose the 12%?PS My IFA is one of the UK's leading SIPP providers and would only accept the transfer on an execution only basis.
That's because they know it would be bad advice to advise you to move the pension.0 -
There are 2 reasons to transfer:-
1. I don't want to buy an annuity. I believe drawndown offers much better flexibility. The rest of my pension fund is invested this way and has proved to be a wise choice over the last 10 years despite the chaos in the financial markets.
2. By transferring I can take advantage of the relaxed Protected Rights rules and take 25% tax free which is not available under the rules of the Section 32 policy.0
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