Prudential s32 pension - update

parcival

The Exeter thing is all flooding back - it was the FOS but ultimately settled by FSCS because Exeter went bust!

dunstonh

The IFA rejected it on the basis that he could not reasonably have been expected to understand the complexity of split caps!!!

He was never going to win on that argument. If you dont understand it then you dont go near it.

The Exeter thing is all flooding back - it was the FOS but ultimately settled by FSCS because Exeter went bust!

So, if you were to make a complaint on the pension now then it would go to the FSCS as the firm went bust.

MikeJones_2

SnowMan wrote: »

The IFA should have explained that you were switching from a scheme that provided a guaranteed benefit to an investment that was dependant on investment returns and dependant on unknown annuity rates at retirement.

A correction for other readers as I suspect Snowman genuinely didn't mean to use the phrase 'guaranteed benefit'.

Unfortunately 'final salary' schemes (which are a type of defined benefit scheme) don't provide guaranteed benefits.

Benefits provided by final salary schemes are based up a promise by the sponsoring employer (or taxpayer for some public sector schemes) rather than a guarantee.

EdInvestor wrote: »

It will pay out at 60.She could in addition take the pension now, but it would need to be converted in a personal pension first abd she would lose her guarantee.

It's entirely possible that the Section 32 Buyout may be able to provide your wife benefits now (rather than age 60) without transferring it to a personal pension plan. Even though the S32 has a Guaranteed Minimum Pension as part of the benefit, it may be that this was a minority element of the pension benefit so don't exclude the possibility of taking the pension from the buyout plan.

Furthermore, as the Buyout was set up before 6th April 2006, there might be a greater tax free cash lump sum available than if transferred to a PPP.

We could add more detail, Parcival, especially if you wanted to tell us more about the policy? The Policy Schedule would give most of what we would need to know such as GMP at date of leaving, date of leaving, NRD, GMP revaluation rate etc. Shout up if you want some more help.

Mike

I work in the field of Pension Education and Pension Guidance in the UK. I am a 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.

parcival

Thanks MikeJones - I will get all the figures together and update by the end of the week.

parcival

Finally got some figures together - hope they help give a view of it all.

My wife left Barclays in September 1990 with 14 years 6 months service in the final salary pension. The Barclays paperwork indicates that a deferred pension of £3675 would be payable in 2015 at age 60. This pension included a GMP on leaving of £16.56 per week and was estimated to be £4885 pa at 'state pensionable age' (although this has since gone from age 60 to 65 in her case). The Barclays pension would have grown at 5% or RPI although the GMP element would have grown at 7.5% pa.

The transfer to the Prudential s32 pension took place in August 1993 - there was a transfer value of £22907. The Pru paperwork indicates a Selected Pension Date of 2015 (age 60).

The Pru paperwork shows that the investment purchased 2 types of units:
With Profits 1 - £12962 - non GMP units
With Profits 2 - £10118 - GMP units.

These have since grown to the following:
WP1 - £28255
WP2 - £19110

The Pru statement also state that a 'final bonus' may be payable and they give an illustration each year which has gone up and down like a yoyo - for example:

1997 - £2295
2000 - £12307
2002 - £18102
2004 - £8302
2006 - £13772
2009 - £24078

We are not clear if the final bonus relates to non GMP units or to both types of units.

My wife does not want to take this pension until age 60 (unless it is especially beneficial to do so), but is more concerned that she will be worse off than if she had left it deferred with Barclays.

MikeJones_2

Hi parcival,

Different companies communicate the deferred pension using a variety of terminology and from what you've posted I suspect the 'deferred pension of £3,675 payable in 2015 at age 60' is actually your wife's preserved pension at the date she left pensionable service.

Why? Well because the pension is normally split into constituent elements each of which may revalue (increase) or not (depending upon the date of when a scheme member ceased active service):

Guaranteed Minimum Pension
The GMP works out correctly from what you have supplied (assuming her 60th birthday falls after 5th April 2015?).

The £16.65 pw is increased (revalued) each complete tax year between her date of leaving service (DOLS) and her state pension age (which for her is 60 for the purpose of this calculation).

Hence:

£16.65 x 52 (weeks in a year) = £861.12 p.a. (= her GMP at DOLS).

Revalued GMP at State Pension Age (60 for the purpose of her GMP):

£861.12 x 1.075 x 24 (complete tax years) = £4,885.03 p.a.

This latter figure is confirmed in your last post.

Having transferred her benefits to a Section 32 Buyout policy, the pension provider (in this case Prudential) must legally provide her with at least a pension of £4,885.03 p.a. on her 60th birthday.

Non Guaranteed Minimum Pension (sometimes called 'excess above GMP at date of leaving service)
From what you've posted her pension at DOLS was £3,675 p.a. This would normally include the GMP at DOLS, so her 'excess' pension would be the difference:

£3,675 - £861.12 = £2,813.88 p.a.

So, in fact your wife's absolute minimum pension at age 60 had she remained in Barclay's final salary scheme (assuming inflation was nil in the period from 1990 to 2015 which of course it was not) would have been:

her revalued GMP (£4,885.02 p.a.) plus her excess pension (non GMP) (£2,813.88 p.a.)

= £7,698.90 p.a.

However, because your wife left service before 01/01/1991 (but after 01/01/1986) any non GMP earned after 01/01/1985 (I know, apologies about the different dates - but that's what legislation does to pensions - makes them complicated) has to increase (revalue) by the lesser of RPI and and 5% p.a. compound over the period between leaving pensionable service and Normal Retirement Date.

This is overriding legislation and is the minimum increase permissible.

A scheme may provide more than the two elements combined (revalued GMP plus revalued non GMP) but not less.

As I don't know from your post what the split of non GMP was at her DOLS, I can't do any more specific calculation of her estimated pension at her Normal Retirement Date.

Apologies for the lengthy reply but does any of that help (or make sense)?

I'll defer to the IFAs to respond to the bonus element of your query.

Mike

I work in the field of Pension Education and Pension Guidance in the UK. I am a 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.

parcival

Have written to the Pru to obtain clarification on how the final bonus will be used - will it be used for the GMP part or is it all for the additional pension.

Either way I don't see how it could ever have been as good as the Barclays Final Salary so I can feel a complaint coming on!

parcival

Now have some figures from the Pru which are concerning.

They state that the GMP of £4885 is guaranteed at SPD. The remaining 'With Profits' units and a proportion of the final bonus will purchase additional pension which they currently estimate to be £2020 making an annual pension of approx £6900 per annum.

However in the Barclays Final Salary scheme she would have had a pension of £4885 plus an excess pension of £2813 (in 1993). The Barclays excess pension would have grown year on year by up to 5%. Using a very conservative figure for inflation I reckon that the Barclays excess pension by the age of 60 would have been £5000 making a pension of almost £10000.

Another cause for concern is that the Pru's letter implies that the s32 policy has no spouses pension - I am sure that the Barclays pension would have done.

Am I missing something - it seems like a clear cut case of mis selling to me. I think the IFA should have said ' stay put in the Barclays pension as it would be virtually impossible to beat it'

bogeysmum

It could just be that the Prudential haven't quoted for a spouse's pension. You wouldn't have to take retirement benefits with the Prudential. You are permitted to take the open market option value of the fund to find the best annuity in the marketplace for the particular type of pension you want - ie one that includes a widow's pension.