Is it possible that Norwich Union have been negligent

MikeJones_2

howeller wrote: »

does that stand for
guaranteed minimum pension ...and
guaranteed annuity rate?

Yes. Do you understand what each term means?

Mike

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.

howeller_2

MikeJones wrote: »

Yes. Do you understand what each term means?

Mike

Not really!

MikeJones_2

Hi howeller,

Guaranteed Minimum Pension
From 6th April 1978, the State Earnings Related Pension Scheme (SERPS) was introduced which provided a pension benefit in addition to the Basic State Pension (the ‘Old Age Pension’ to you and me) for employed people who paid National Insurance contributions between an upper and lower earnings limit, determined by the Government.

When an occupational pension scheme (such as your company pension scheme) decided not to participate in SERPS, the scheme was said to be ‘Contracted-Out of SERPS’.

So, during the time you were a member of your company pension scheme you were Contracted-Out of SERPS and you accumulated a Guaranteed Minimum Pension (GMP) which is the pension that is provided as the SERPS replacement. Your company pension scheme therefore took over the responsibility (and liability) to pay you your GMP and has a legal requirement that at the very least, it must provide you with your GMP at State Pension Age.

When you transferred to a Section 32 Buyout, Norwich Union your chosen provider, accepted the responsibility (and liability) to pay you your Revalued Guaranteed Minimum Pension (RGMP) at State Pension Age.

This RGMP will be stated on your NU policy document. If it is not then, the policy document will alternatively state what your GMP was at the date you left your company pension scheme. It will also tell you at what rate it is increased by, for each complete tax year, between your date of leaving and your State Pension Age. The amount of the annual GMP increase (referred to as the 'Revaluation Rate') depends upon your date of leaving the company scheme.

There’s quite a bit more about GMPs, but I just wanted to make sure you understood the basics.

Guaranteed Annuity Rate (GAR)
The amount of pension bought by each £1,000 of purchase price (the pension fund or 'pot', to you and me). Normally, annuity rates vary because of factors such as age, sex, health, life expectancy.

A GAR however is a set rate - predetermined when you took out the Section 32 Buyout. Not all Section 32 Buyouts have a GAR (in fact relatively few as a proportion of the overall).

It is likely to be much higher than you would be able to get in the open market now, and is therefore a valuable commodity.

Hope that has helped to clarify things a little.

Mike

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.

EdInvestor

howeller wrote: »

I am 57 female; I have another pension (non-contributary) also with NU transferred from a company pension in 1993. Worth about 40,000 in 2003 it was upgraded by £40000 to compensate for losses incurred by removing it from the company scheme. By February 2008 worth £130000 (99000 non-protected 30000 protected whatever that all means) now worth £99000.

Just to clarify, this pension very likely has at least a GMP attached,which the company must pay even if the fund is below the value needed to buy an annuity equivalent to the GMP on the open market. So you don't need to worry about this pension. It might be useful to find out how much the GMP is.

Plus have you got an update on your two state pensions? Forecast here:
https://www.thepensionservice.gov.uk
If there are no "protected rights" in your NU pension, it may be that your state pension will be igher than you thunk.

If I had paid my pension contributions into a savings account earning a fairly modest 2% over the last 15 years it would now be worth about £50,000... or am I missing something?

Well possibly;) What is your pension invested in now? Iif you wanted it to be in cash, you could have chosen the cash fund.A pension is just a tax wrapper, YOU - or your IFA (not NU) have to choose the investments within it.Amazing how many people don't seem to realise that

You and partner really need to sit down and learn the basics of how to invest a pension - not as hard as it may seem. Or hire you can an IFA to do it for you.Make sure he doesn;t do anything to your S32 pension such that you would lose the GMP guarantee.

howeller_2

EdInvestor wrote: »

Just to clarify, this pension very likely has at least a GMP attached,which the company must pay even if the fund is below the value needed to buy an annuity equivalent to the GMP on the open market. So you don't need to worry about this pension. It might be useful to find out how much the GMP is.

Plus have you got an update on your two state pensions? Forecast here:
https://www.thepensionservice.gov.uk
If there are no "protected rights" in your NU pension, it may be that your state pension will be igher than you thunk.




Well possibly;) What is your pension invested in now? Iif you wanted it to be in cash, you could have chosen the cash fund.A pension is just a tax wrapper, YOU - or your IFA (not NU) have to choose the investments within it.Amazing how many people don't seem to realise that

You and partner really need to sit down and learn the basics of how to invest a pension - not as hard as it may seem. Or hire you can an IFA to do it for you.Make sure he doesn;t do anything to your S32 pension such that you would lose the GMP guarantee.

This has been a real eye-opener for me; thanks you everyone for the info.

I have found the document setting out my benefits when the pension was transferred to NU; in short max benefits payable at NRD £7000 pa.

The excess over GMP benefits shall increase at 5% pa.

Does this mean anything?

howeller_2

...and how do I know that I still have the GMP?

I don't have the pension policy doc. I have asked NU to send me a copy.

MikeJones_2

Hi again howeller,

howeller wrote: »

I have found the document setting out my benefits when the pension was transferred to NU; in short max benefits payable at NRD £7000 pa.

Maximum Pension
If the 'max benefit payable at NRD £7,000p.a.' was stated in your S32 Buyout policy document, it is probably referring to the way that HM Revenue & Customs (what was the Inland Revenue) rules were before Pension Simplification (A-Day) rules came into effect (most of which were introduced with effect from 6th April 2006).

Before, A-Day if you were a member of a defined benefit scheme, the Inland Revenue had rules stating the maximum benefits that you have had for pension, tax free cash and lump sum death benefits.

When you ceased to be an active member of the final salary scheme, the scheme would have worked out what your preserved benefits were at the date of leaving. However, they would also have known what your Inland Revenue maximum benefits were so that they could make sure that with any pension increases that were granted to your preserved benefits they did not exceed the Inland Revenue limits. This would normally have been checked when your began to draw your benefits, such as at your Normal Retirement Date.

Because you transferred from your final salary scheme to a S32 Buyout, then at that time the product provider (in your case Norwich Union) would have been responsible for recording your Inland Revenue maximum limits.

Theoretically, if your transfer value (now with NU) achieved investment returns that meant your pension fund grew very well indeed, there may have come a point, when you wanted to begin drawing your benefits, that the pension 'pot' could actually have paid you more than your Inland Revenue maximum pension and cash lump sum (or on death more than was permitted as a death benefit lump sum). Had this ever happened, and I know of several schemes where members had this happen in reality, the pension provider could only have paid you the maximums under the old Inland Revenue rules. Any 'excess' pension fund would have been returned to your former final salary scheme - of if that wasn't still there, would have been retained as a 'windfall profit' by Norwich Union.

The above rules were changed with the introduction of pension simplification, as previously mentioned, so you should be able to forget the maximum pension figure quoted on your policy document.

Pension Increases

howeller wrote: »

The excess over GMP benefits shall increase at 5% pa.

This is probably referring to the level of pension increases you will receive when you start to take your pension. Remember that your 'pension pot' with NU must provide you with your Revalued Guaranteed Minimum Pension at State Pension Age as an absolute minimum legal requirement. Any monies in the 'pot' over and above that may be used to provide you with a cash lump sum (up to a new level prescribed by HMRC since 6th April 2006) and/or additional pension.

If you use some or all of the 'pot' (if any is left) after taking the Revalued GMP as your document says, "The excess over GMP benefits shall increase at 5% pa". So, that part of your pension would receive annual increases of 5%.

Hope that helps, and apologies for the lengthy reply to your question.

Mike

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.

howeller_2

Hi Mike

Thanks for all that information; would I be wise to get an IFA to work out what I might eventually receive as a pension because it seems awfully complicated?

EdInvestor

I suggest you write to NU and ask them to confirm what your GMP will be at the Retirement Date.Also ask them to tell you what other benefits are attached to the pension, eg index linking, spouse pension.

[BTW at the moment a fund of 99k would only buy a level annuity worth 6,612 p.a.for a 60 year old women with no spouse annuity, so you are making a profit out of NU as they must pay you at least 7k and will have to make up the difference.]

Also get a new forecast for your state pensions (there are 2).

Then you wll know what your basic guaranteed pension income will be.

After that you can start thinking about what to do about the other NU pension you posted about initially, depending on whether your basic pensions will be adequate for now.

Now would not be a good time to turn your NU pension into an annuity, and anyway annuities are not a good idea for young retirees. However there is a way to get the tax free cash lump sum out now without locking into an immedeiate income, which may be of interest.

Come back to us when you get the basic info confirmed and we can tie up the loose ends.