Transfer of Section 32 pension

ozbrit

casey_junior wrote: »

eilsa123 wrote: »

I think the answer to this is that the profits go to the shareholders and not the policyholders.

I do understand that investments have been tough but they have at least gone Up as well as down.

And Aviva proudly boast how well their with-profits perform every year but then say they are holding the bonus to the previous years value, nil.
It must feel great to have a captive audience.

I have a section 32 pension which was transacted in August 1988, I understand that this was shortly after legislation on Company 40/60 pensions was changed, can anyone explain what the main benefit of this change to me would be?

On annual bonuses. I transferred ~14000 to the section 32 buyout and was given a guaranteed fund value of 101,330 in 2019 at age 65.

Between 1988 and 2001 I received statements which showed annual accruing of annual bonuses, these appeared lucrative and added a further 65000 in guaranteed bonus.

Of course since then there's been no annual bonus and indeed circa 2004-5, policyholders received notice from NU there was a change of policy by the Company and annual bonuses would cease.

Turn the clock back to circa 1997. NU was a Company owned by the members. The Management decided that it was in their and in ours the Members interests to sell out and become a publicly listed Company. Along with the statements issued at the time was a guarantee that profits to members policies would not be affected by this change of ownership.
I must have been a bit gullible in those days as I accepted the Managements argument and voted for the change and duly received some shares which I sold sometime later for ~ 4000. I realise trading conditions became quite dire soon after the turn of the new millenium, but while our annual bonuses were being quashed, the dividends for share-holders continued. I'm not suggesting that shareholders shouldn't get a return, but on reflecting on the Managements promise of 1997 I couldn't have been thinking straight to have accepted it.

I recognise that equities haven't performed in the past decade, but don't the fund managers invest in an array of investments, property, commodities, emerging markets, Insurance, treasury bonds etc. If so, why the continual focus on poorly performing equities?

Thanks for your time, these are some of my observations, but most of all I'd like to know whether Aviva are required to add anything to the final figure if what they make on their investments proves to be negligible?

dunstonh

Thanks for your time, these are some of my observations, but most of all I'd like to know whether Aviva are required to add anything to the final figure if what they make on their investments proves to be negligible?

No they are not.

The problem with many section 32s is that the guarantees they are offer are far greater than the amount the fund could realistically grow to beat those guarantees. So, the addition of bonuses is largely irrelevant. Plus, someone has to pay for those guarantees and that means the policyholders that have them.

I transferred ~14000 to the section 32 buyout and was given a guaranteed fund value of 101,330 in 2019 at age 65.

There you go. You have a guarantee that equates to a fixed return of around 6.6% p.a. net of charges. That is where the value is. Not whether you get 2% p.a. bonuses.

nrsql

Do many people (or anyone) get as far as losing the guarantee without realising it or does it get stopped before it gets that far?

I suspect most statements are like mine with just a (not very obvious) sentence that the guarantees may be more valuable but no indication of what they are.
They should have "Don't touch" in big red letters at the top - or maybe an option to stop the useless statements being sent.

dunstonh

Do many people (or anyone) get as far as losing the guarantee without realising it or does it get stopped before it gets that far?

The providers would love to see you transfer it elsewhere. Often the documentation hides the fact there are guarantees or just states it has a GMP or GAR but the policyholder may not have a clue what they are.

If the policyholder fills in the transfer discharge forms then it is transferred as they have requested. There is no checking to see if that is really what you wanted. Effectively, that is the risk of doing a DIY transaction. If you use an IFA, they have to check, warn and advise. If you DIY, you have to know what to look out for.

They should have "Don't touch" in big red letters at the top - or maybe an option to stop the useless statements being sent.

That would be advice though and many providers are not authorised to give advice. They will usually cover off with statements about there being options and guarantees which could be valuable and that you should check with an IFA first. Then they leave it for the individual to decide what they want to do.

casey_junior

Oh Sweet Jeepers, just when I thought I'd got my head around it, now it comes back and bites me again.

ozbrit wrote: »

On annual bonuses. I transferred ~14000 to the section 32 buyout and was given a guaranteed fund value of 101,330 in 2019 at age 65.

dunstonh wrote: »

There you go. You have a guarantee that equates to a fixed return of around 6.6% p.a. net of charges. That is where the value is. Not whether you get 2% p.a. bonuses.

OK, I transferred 10125 in March 1988, getting a guaranteed fund of 38000, well short of 6.6%
My bonus up to 2001 when they stopped was 23000, 50% less pro rata than ozbrits 65000.
This begs the question, were my £s of significantly less value than all other Aviva Sec 32 buyout posters who have aired their opinions here, or what is the reason?

Loughton_Monkey

nrsql wrote: »

Do many people (or anyone) get as far as losing the guarantee without realising it or does it get stopped before it gets that far?

I suspect most statements are like mine with just a (not very obvious) sentence that the guarantees may be more valuable but no indication of what they are.
They should have "Don't touch" in big red letters at the top - or maybe an option to stop the useless statements being sent.

I have a relative who is 65 next year. He has a Friends Provident pension with guaranteed annuity rates. I have in my possession a "Projected Retirement Illustration" that quotes the fund value (5%/7%/9%) and offers "Full Annual Pension" as 6.5% of the fund, whereas the guaranteed annuity rate at the same date is 9.99% [and staggeringly 11.6% by taking it annually in arrears].

They do in fact enclose a single page sheet on Guaranteed Annuity Rates, and so could be considered 'clean'. But many people would miss the significance of it. A phone call to the company just to ask the direct question "So I could, in fact, receive 9.99% per annum of the final fund?" elicited a very non-committal "I suppose so, but you need to wait until retirement".

dunstonh

This begs the question, were my £s of significantly less value than all other Aviva Sec 32 buyout posters who have aired their opinions here, or what is the reason?

Your £s could well be less value. A section 32 is not just one thing that is the same for everyone. The level of guarantee can vary across the board. You see good and bad.

casey_junior

dunstonh wrote: »

Your £s could well be less value. A section 32 is not just one thing that is the same for everyone. The level of guarantee can vary across the board. You see good and bad.

But why should there be such a variance with the same company, especially with bonus, on policies starting at approx the same time?
I really feel abused by Aviva, they wrote to me recently about my due to mature policy and told me

“Your policy provides a guaranteed pension which is a valuable benefit. This means the income you will get from us is likely to be higher than you will find with another company”

I wrote to ask them what this actually meant and got no reply, so I wrote again and still have heard nothing.

I can't understand why you insist that the value is in the guaranteed fund. Surely as the bonus increases, the fund also increases. If I had been offered at the time a guaranteed fund only, it would have been No Sale as the pension from that would have been only 20% of what it would have been if preserved in the original scheme.
The huge bonuses bandied about were the selling point of these plans
and ozbrit is quite right to point out that the bonus stopped but the shareholders took no hit.

jamesd

The guaranteed minimum pension is often an extremely valuable benefit. It could double the amount of income you get compared to buying an annuity on the open market. Or more, or less, depends on just what the guarantee is. You'd have to ask them for details of the Guaranteed Minimum Pension (GMP).

The reason those can be so valuable is that they were set up when life expectancies were lower and investment grains expected to be higher, so they provide annuity rates as a percentage of capital value that are higher than current annuity deals.

The bonus increases the value but the value of the GMP has to be funded somehow as well. That's probably where the growth that would be paying the bonus is going. And even so, it may well not be enough to cover the cost of the GMP - those can be very expensive to fund.

Aviva is correct to tell you that the guaranteed pension is a valuable benefit. It's very likely to be a case where the best possible annuity deal, if you want an annuity, is with them. And the deal may well be so good that not buying an annuity would be foolish, even if you don't normally like annuities.

Section 32 us just a type of product, like pension or ISA. It says nothing about the specific terms. I'm being offered one that for me is exactly the same as any personal pension. Other people in the same company who have been employees for longer will have some rights to things like higher lump sum amounts. Depends on the specific pension deal they had at various times. Yours won't be like mine.

Loughton_Monkey

casey_junior wrote: »

.....I can't understand why you insist that the value is in the guaranteed fund. Surely as the bonus increases, the fund also increases. .....

Surely you can understand the concept?

I sell you a house for £100K, and promise to buy it back in 10 years for £200K.

If you get annual statements on the value of the house, then it may have risen to £180K after 7 years, and in the last two years you saw 20% drop, and now a 1.6% rise. So it's now only 'worth' £146K with one year to go.

Where's your value? The £146K? Or the guaranteed £200K?

Who cares if prices rise by 2% in the 10th year to £149, or 20% to £175K? Discuss!