Transfer of Section 32 pension

doublekite

I have a pension with Norwich Union which was a section 32 transfer and gives me a guaranteed fund value at retirement. I am n0w 51 and it can be taken at age 62.

There has been no annual bonus paid by NU for the last 3 years, and I am getting frustrated. Is it possible to transfer this fund to another provider, and if so would it be worthwhile or are there hidden costs to consider? What is the best time to transfer if this is an option?

Any advice appreciated.

EdInvestor

If you transfer the fund it will have to be converted into a personal pension and will lose the guarantee.You thus need to work out if you can invest the money over the time to retirement so as to generate sufficient gains to pay out the guaranteed pension income or more. How much would the transfer value have to grow to beat the GMP? Is it a realistic target?

You can get an idea of how much the fund would need to be worth by checking annuity rates here:

https://www.fsa.gov.uk/tables - go to pension annuities

The insurer is required to pay you the guaranteed income, even if the fund value is too low to buy you a similar annuity in the market.Are there spouse benefits attached, and is the pension index linked in payment?

This would make it even more difficult to reach the 'critical yield" required to match the guarantee.

dunstonh

There has been no annual bonus paid by NU for the last 3 years, and I am getting frustrated.

Why are you getting frustrated?

NU are giving you a guaranteed fund value at retirement and interim bonuses are almost certainly not going to make any difference to that.

Is it possible to transfer this fund to another provider

It is unlikely that another provider would take on the GMP liability but you could transfer to a personal pension or stakeholder pension.

and if so would it be worthwhile or are there hidden costs to consider?

Not possible to say without facts but the fact there is no bonus suggest and you mention a guarantee suggests you could have potentially massive losses if you were to transfer it.

You are focusing only on the bonus. You need to factor in the guarantee and find out what benefit that is to you. Once you know that you can do a TVAS (transfer value analysis) to compare the section 32 benefits (which may include lump sum variations, guaranteed minimum pension and guaranteed annuity rates among others) to modern versions that have none of those.

surv66

I am in a similar situation with an NU transfer 32 plan. my policy gives a GMP of £5500 single life at 65 in 9 years time.However I do not wish an annuity but prefer to change to a drawndown if at all possible
.Is it best to wait until the policy reaches maturity to convert or to get out sooner .
The current value of the plan is £47000. on maturity the fund value will be capital sum £53000 +£32000 bonus, with no bonuses being added there will be insufficient funds to allow 25% TFC
I understand that the rules are changing on 1st October 2008 to allow a transfer of protected rights policy to a SIPP but am not aware of what type of investment this would be
any suggestions in the right direction would be appreciated

dunstonh

I am in a similar situation with an NU transfer 32 plan. my policy gives a GMP of £5500 single life at 65 in 9 years time.However I do not wish an annuity but prefer to change to a drawndown if at all possible

If you go drawdown, you will lost that GMP.

The current value of the plan is £47000.

In which case the GMP is probably far more valuable than the fund value (annuity will probably have spouse and indexation factored in).

I understand that the rules are changing on 1st October 2008 to allow a transfer of protected rights policy to a SIPP but am not aware of what type of investment this would be

A SIPP is not an investment. It is type of pension that allows you to place investments inside it. However, personal pensions already exist that allow you to do this. Although I think you really need to get professional advice on this as you could be losing far more than you realise.

EdInvestor

To provide a level single life pension @65 of 5,500 p.a. you would need a fund value of 70k at current annuity rates. This means your existing fund worth 47k would need to grow at 4.5% annually after charges to reach the target - ie, at around 6.5% a year. Your fund would have to grow at a higher rate to provide any tax free cash.

nrsql

Have a look at
http://forums.moneysavingexpert.com/showthread.html?t=974095
I wrote to them and asked for details of the guaranteed benefits (just a one liner with the policy number) - the response with the details (which I still don't fully understand) came in a about a week.


And I would be surprised if any bonus ever gets applied to the fund (unless they have no option).
They'll leave it to the final bonus which they can set without causing future liability.
Think you should ignore the value and just consider the guaranteed benefits.

doublekite

Thanks to those who resonded. It would seem foolish to transfer out and lose flexibility and/or benefits.

I really have no grasp of pension small print, but my facts are as follows and I would appreciate your comments:

Current age 51
Pension can be payable at 62 (reduced amount of course)
Transferred in £4970.55 ( of which £2172.63 was my contributions) 9.2.89
With profits benefit £33,431
Annual bonus to date £20,468.30 (cannot be taken away?)
Final bonus not guaranteed, depends on market at retirement.
Guaranteed Minimum Pension £345.28 x 8.5% compound, which I reckon is £5097.45
Lump sum death benefit £2172.63
Maximum pension quoted as £1664.25 x 5% compound (£7,730) or x RPI which ever is greater
Widows pension is 2/3 of max pension or £1109.50 x 5% pa
Guaranteed minimum widows pension is £2548.78

Any help appreciated...are these figures generous?

Am I correct in saying that the GMP of £5097.45 is the important figure to consider?

Do I need to look at annuity tables for my total fund value of £33,431 + bonus so far of £20,468.30 = £53,899.30?

I am a non smoker.

EdInvestor

Have a look at annuity rates here:

https://www.fsa.gov.uk/tables

Check how big a fund you would need to pay the max pension + spouse's pension (is it index linked in payment?) and also the GMP.

Then check how much annuity you would get for the fund value.

No contest, I would suspect.

cornerstone13

We've also got an NU Transfer Plan 32. Am I understanding you correctly that the statements that we are getting from NU in effect have no relevance to what I can expect to be paid at NRA under the plan ?

dunstonh

cornerstone13 wrote: »

We've also got an NU Transfer Plan 32. Am I understanding you correctly that the statements that we are getting from NU in effect have no relevance to what I can expect to be paid at NRA under the plan ?

Depends on the Guaranteed minimum pension (GMP) on the plan and any Guaranteed annuity rates (GAR).