Section 32 with Pru

YaniB_2 · 13 April 2015 at 3:50PM

I have such a policy with the Pru which will mature on my 65th birthday (11 years from now).
I discovered only recently about the guaranteed minimum pension within this. On phoning the Pru I was told I had a GMP of £6850 at 65.

My question is will this figure change over the next 11 years due to indexing for inflation. £6850 might seem ok today but in 11 years may look quite poor value.
I did ask this question to the Pru but they seemed confused saying only that the figure was guaranteed.

Hope I being clear !!

xylophone · 13 April 2015 at 4:25PM

http://www.financialadvice.net/s32_buy_out_plan/zone/1288

It may be that the Pru is able to tell you with some certainty what your GMP at 65 is because it is being revalued at Fixed Rate.

https://www.barnett-waddingham.co.uk/comment-insight/blog/2014/08/18/what-is-a-gmp/

YaniB_2 · 14 April 2015 at 10:34AM

I believe you would be right in that assumption. Having transferred in 1992 I believe the original GMP quoted by my company would have to be re-valued at 7.5% per year compound.

I understand this as more to do with re-valuing the pension rather than any inflation proofing.

What I am asking here is the figure of £6850 quoted by the Pru as at my 65 birthday set in stone. Will there be no further inflation proofing of this figure from now until I retire ?

The £6850 figure seems reasonable if I were retiring today but will look pretty poor 11 years down the road.

redbuzzard · 14 April 2015 at 11:44AM

Whether it is poor value depends on the transfer value, surely?

I've a Section 32 with SE, that will pay me £5846 p.a. level from age 65.

The transfer value 3 years ago was c. £60k.

I can't remember the exact numbers off the top of my head, but IIRC it gave me an annual pension of c. £450, with a fixed uplift of 8.5% p.a., effectively fixing the pension payable at 65.

The policy document isn't particularly clear and I called them to clarify it.

The above doesn't mean yours works the same way of course.

YaniB_2 · 14 April 2015 at 12:12PM

Thanks for the reply.

On checking with the Pru my fund value at present is 96k which includes a stated final bonus of around 20k. I have calculated that if this fund grows at roughly the same rate as it has up to now it should end up possibly around 160k at retirement.

Taking this sum (160k) and dividing it by the guaranteed pension it would be a further 23.5 years for me to break even (88 years old).

I realise the pension is guaranteed but is this really such good value or would it be better transferred where I can get 25 % tax free and use the remaining fund to invest.

One other question is would the Pru allow a section 32 to be transferred rather than take the GMP on offer ?

redbuzzard · 14 April 2015 at 1:04PM

YaniB wrote: »

Thanks for the reply.

On checking with the Pru my fund value at present is 96k which includes a stated final bonus of around 20k. I have calculated that if this fund grows at roughly the same rate as it has up to now it should end up possibly around 160k at retirement.

Taking this sum (160k) and dividing it by the guaranteed pension it would be a further 23.5 years for me to break even (88 years old).

I realise the pension is guaranteed but is this really such good value or would it be better transferred where I can get 25 % tax free and use the remaining fund to invest.

One other question is would the Pru allow a section 32 to be transferred rather than take the GMP on offer ?

SE were happy to do that 3 years ago, when I left it where it was. I'll review this again myself. That may have changed and of course Pru will have its own policy; easiest to ask them.

You have made me think anyway!

Thinking aloud, the high-inflation scenario is the main threat to my retirement income and I think there may be better ways of dealing with that than settling for <=£6k of level income that I am not necessarily going to need (I have sufficient other savings and income to get by well enough on any "normal" assumptions).

Another point is the new factor, since I last looked at it, that pension pots can be passed on tax free outside the estate. Rather than take what is actually an annuity that dies with me anyway, I'd possibly rather have the transfer value and investment growth in the uncrystallised bit of my SIPP if I fall off the twig before 75, or available for use after that if I don't!

Apology if that digression is not relevant to you.

xylophone · 14 April 2015 at 1:26PM

One other question is would the Pru allow a section 32 to be transferred rather than take the GMP on offer

See http://forums.moneysavingexpert.com/showthread.php?t=5101466&highlight=s32+transfer+out&page=3 post 41.

Have you checked your situation with the Pru?

If you can transfer, you will need to take the advice of an IFA qualified in pension transfers.

Will you draw your state pension on or after 6 4 2016?

YaniB_2 · 14 April 2015 at 1:27PM

Thanks again Redbuzzard for the reply.

On looking through this site someone else also mentions a Pru 32 Bond having transferred from a banks final salary scheme. The advise given to them seems to show a final pension made of 2 parts, the GMP + an amount from the non guaranteed part.

My pension statement shows a with profits 1 units bought plus a with profits 2 units bought.
Will I also possibly have additional pension on top of the £6850 guaranteed minimum stated ?

Is one lot of units used for the GMP while the other set of units buys additional pension ?

YaniB_2 · 14 April 2015 at 1:34PM

[
Have you checked your situation with the Pru?

Will you draw your state pension on or after 6 4 2016?[/QUOTE]

I have not asked the Pru as yet. I only asked about the GMP and what value it would be at 65. I am only 54 at present hence why I asking was the 6850 figure set in stone. 11 years of inflation could erode this figure substantially.

xylophone · 14 April 2015 at 3:06PM

Your S32 may have two parts but

see http://www.financialadvice.net/s32_buy_out_plan/zone/1288

"In summary, your S32 Buy Out policy may have two elements

Guaranteed Minimum Pension (GMP) - the scheme must guarantee to pay at least this at retirement. The GMP increases in value each year, depending the year your left the company scheme.

Non GMP (normal pension benefits) - sometimes known as the Excess Over GMP. Any pension benefits that are not linked to providing the GMP part are known as excess pension benefits.

GMP Shortfall - What if S32 Buy Out Returns are low?

If investment returns or bonuses are poor, there may not be enough money in the fund to fund/cover/pay for the increased/adjusted GMP pension.
If this is the case, the S32 Buy Out Provider is unlikely to allow you to transfer the S32 pension elsewhere.They will stand the loss and make up the shortfall.

In these cases, it may mean that you lose some or all of any normal pension benefit your transferred inside the S32 as these may be used to help with any GMP shortfall."

Only the Pru can answer your specific questions about your policy.

Your GMP is increasing at fixed rate so the amount at 65 (GMP age for males), is known.

That GMP is split into two parts, pre 88 GMP and post 88 GMP.

When the GMP comes into payment, the insurer will be obliged to index link the post 88 GMP up to 3% CPI.

The fact that you have a GMP will affect the way your entitlement to the new state pension is calculated

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/210299/single-tier-valuation-contracting-out.pdf

You should be able to obtain a new pension statement. after 5 4 2016 or earlier if you turn 55 before then.

YaniB_2 · 14 April 2015 at 3:26PM

If there is a shortfall and not enough to buy the GMP at 65 I will then have no option other than accept the £6850 per annum annuity. Is this what you are saying ?

No transfer would be possible ?:mad:

Section 32 with Pru

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