Help-Pension payout imminent

poundcoin

Apologies first for my naivety on pension intracacies.

I am self-employed and used to think that when the time came for me to stop working I would be able to sell my business on and that that sum would help fund my retirement.Hence I never paid much attention to paying into pensions and only pay in £50 per month.
Now comes the credit crunch and maybe that business won't be worth very much when I expected to retire in 5 years time !

I am approaching my 60th Birthday in a month and was surprised to receive a letter last week from Scottish Mutual saying that "my selected retirement date is just weeks away".
To be honest I don't even remember selecting 60 as my retirement age when it was taken out and it didn't show on the yearly statements.

Its only a modest sum so can't retire yet (if ever) and according to the letter the "value of the policy" at the end of March 2009 will be £35100 all made up of "non protected rights".

They give 4 options:
1)Buying an annuity from Scot Mutual
According to the quote ,this gives an annual pension before tax of £3275 or £2456 pa if taking a tax free lump sum of £8776 (both with a guaranteed 5 years).

2)Buying the annuity from another company.
(I do have an odd £1000 in a Norwich Union stakeholder pension that matures when I'm 65 and don't pay anything into at the moment (a mess up with an original Natwest pension plan !)).

3)Tranferring the fund to another pension provider, would I be much better off on this sum with another provider ?
(May lose any "guaranteed annuity rate " according to letter.)

4)Taking pension at a later date with Scot. Mutual and presumably carry on paying my £50 per month (or not ?)

As I have heard of people carrying on paying in ,to build up a "pot" and actually coming out worse off, is it best to go with Option 1 ?

Also the tax free lump sum of £8776 I presume could be used to pay off some of our outstanding £21000 mortgage so I would be saving the £50 month premium and also have a much reduced monthly mortgage payment or a shorter repayment time.

I have searched these forums most of the day for anything similar and not found anything so any advice would be welcome.

dunstonh

To be honest I don't even remember selecting 60 as my retirement age when it was taken out and it didn't show on the yearly statements.

Pension applications had to put an age on them. However, most pensions dont hold you to that date and you can take it earlier or later. Some older plans may have reasons why you wouldnt do that and reasons why you really should.

As I have heard of people carrying on paying in ,to build up a "pot" and actually coming out worse off, is it best to go with Option 1 ?

No. Invesmtents zig zag in value and whilst its possible to be worse off if you do a short term deferment (say a year or two) but a long term deferment shouldnt see you worse off. Plus, you are older and your annuity rate will be higher. If you are concerned with investment risk then you make sure the investments match your risk profile.

(I do have an odd £1000 in a Norwich Union stakeholder pension that matures when I'm 65 and don't pay anything into at the moment (a mess up with an original Natwest pension plan !)).

It doesnt mature at 65. Again, that is just a nominated age. You can defer it or take it earlier.

May lose any "guaranteed annuity rate " according to letter.

You need to find out when the guarnateed annuity rates are paid, how htey are paid and how they change as you get older. Until you know that you arent going to be able to make any decent decision.

EdInvestor

poundcoin wrote: »

They give 4 options:
1)Buying an annuity from Scot Mutual
According to the quote ,this gives an annual pension before tax of £3275 or £2456 pa if taking a tax free lump sum of £8776 (both with a guaranteed 5 years).

You need to compare with this what you would get if you took the money to another company.According to the regulator's site:

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

You would only get 2280 pa. (compared with 3,275) or 1584 (compared with 2456) if you took the guaranteed annuity offered by Scottish Mutual.

(May lose any "guaranteed annuity rate " according to letter.)

At least they drop you a hint that you have a valuable GAR, some companies don't mention it at all and people lose it.

4)Taking pension at a later date with Scot. Mutual

Usually the GAR is only available at the selected retirement date and will lapse if you delay.

Also the tax free lump sum of £8776 I presume could be used to pay off some of our outstanding £21000 mortgage so I would be saving the £50 month premium and also have a much reduced monthly mortgage payment or a shorter repayment time.

Sure.If you don't need the annuity income you can also use that to pay off the mortgage for the moment - or save it to help with living costs later.

It looks like you are one of the pension winners with this policy. So I would accept their kind offer of the guaranteed annuity without further ado.

dunstonh

So I would accept their kind offer of the guaranteed annuity without further ado.

What if the GAR is 50% better at 65?

poundcoin

dunstonh wrote: »

What if the GAR is 50% better at 65?

Thanks both for the informed answers.

I will give them a ring and see how long the GAR is valid for.

EdInvestor

Then we would have to do the calculation of how long it would take the better GAR to catch up with the 5 years of missing pension payments.

The terms of the GAR should be in the original documents that came with the pension at outset.

poundcoin

EdInvestor wrote: »

Then we would have to do the calculation of how long it would take the better GAR to catch up with the 5 years of missing pension payments.

Well phoned Scot.Mutual and not much wiser I am afraid.

The advisor said that the GAR is for the full term of the Pension but she couldn't give me a guide on the phone as to what the likely Annual pension , if taking an Annuity from them , by delyaing for 5 years.
I also mentioned I would like a quote giving a 50% pension for my wife in the event of my death.
All she can do is send a "generalised" information sheet by post as they can't predict 5 years into the future .

Quite how you are supposed to choose the right option with so little information I haven't a clue.

dunstonh

The advisor said that the GAR is for the full term of the Pension but she couldn't give me a guide on the phone as to what the likely Annual pension , if taking an Annuity from them , by delyaing for 5 years.

The cant give you the amount but than can give you the annuity rate.

All she can do is send a "generalised" information sheet by post as they can't predict 5 years into the future .

They also dont have a licence to give advice, opinion or comment beyond anything that is factual.

Quite how you are supposed to choose the right option with so little information I haven't a clue.

Use an IFA.

poundcoin

dunstonh wrote: »

The cant give you the amount but than can give you the annuity rate.



They also dont have a licence to give advice, opinion or comment beyond anything that is factual.



Use an IFA.

Thanks again.

EdInvestor

poundcoin wrote: »

Well phoned Scot.Mutual and not much wiser I am afraid.

The advisor said that the GAR is for the full term of the Pension but she couldn't give me a guide on the phone as to what the likely Annual pension , if taking an Annuity from them , by delyaing for 5 years.

This is likely to be because the GAR only applies if you take it now - it will lapse if you leave if for 5 years.Normally they only apply at the selected retirement date and on the terms in the original document..

I also mentioned I would like a quote giving a 50% pension for my wife in the event of my death.

If the GAR does not allow for this, then you will have to let it lapse if you want this bell/whistle.

Quite how you are supposed to choose the right option with so little information I haven't a clue.

Look up what it says on your original document or ring them again . What annuity rate does it specifiy? They are not going to persuade you take the option which is going to cost them a load of money if there's a chance you will choose the one that doesn't!

The indications are this is a normal GAR, single life, no spouse pension, at a specific annuity rate somewhat higher than the prevailing rate, so a good deal which you should take.

dunstonh

This is likely to be because the GAR only applies if you take it now - it will lapse if you leave if for 5 years.Normally they only apply at the selected retirement date and on the terms in the original document..

I would disagree with that. Most schemes offer guaranteed annuity rates that change with age. However, there are some schemes that dont. It is best not to assume but to find out.

Many schemes will only give you examples on how you can take it. Guarantees can also apply to other options they dont show. Including spouse. However, again, some dont.