Deferred Annuity

Messageman1

Hi

One component of my pension is in the form of a "Deferred Annuity". I phoned the pension company today to find out whether I would be able to get any enhancement to this annuity, as I am Diabetic and am being treated for high blood pressure and high cholesterol.

The pension was originally a final salary scheme which was converted to a personal pension and then by the scheme administrators to a deferred annuity.

I was told that I can not get any enhancement unless my life expectancy is less than one year.

I do have the option of transferring out of the scheme altogether, but I will loose out on the transfer value of the scheme. I may be better off doing this than staying in the scheme.

This does not seem at all fair when compared with what I can do with my other pensions in terms of buying an enhanced annuity. It is also the pension component with the greatest value.

I wondered if anyone else has ended up in this position?

regards

Messageman1

dunstonh

This does not seem at all fair when compared with what I can do with my other pensions in terms of buying an enhanced annuity. It is also the pension component with the greatest value.

Why it is not fair? They are telling you what they will offer you and letting you transfer to somewhere else if you dont like it and can get better.

Scheme pensions often have restrictions on what they can and cannot do. To get the flexibility of other options requires you to transfer to those options. However, the consequence is usually a hit in the transfer value as that rigidity in the scheme pension is often there because of favourable terms that already exist. If they offered flexibility then chances are it wouldnt be as good in other areas.

How much is the cost of transfer?
How do the annuity rates compare?

Iancfp

A deferred annuity is fixed contract - your former scheme has gone to an insurer a bought you a fixed amount of pension (sometimes fully fixed sometime fixed but with potential bonus for good investment returns).

If they can offer you a transfer value you have best of both worlds - you can check the annuity market for an enhanced rate and if you cannot do better keep the scheme pension

Zelazny

Messageman1 wrote: »

The pension was originally a final salary scheme which was converted to a personal pension and then by the scheme administrators to a deferred annuity.

This sounds to me like what happens when a final salary scheme is wound up. Basically, under the final salary scheme you would have been entitled to a pension of £x per year and so in order to close down the scheme they purchase you a deferred annuity of £x per year. The annuity will have all the same rules attached to it as your scheme pension did, including provision for spouse's pension, increases, etc.

The reason you can't get an increased rate is that you wouldn't have got one under the original scheme rules - and the annuity is just the same as the pension you'd have got under the original scheme rules.

As you say, you can take a transfer if you don't like it - but bear in mind that you may actually lose out by doing so, unless you anticipate a large enhancement on health grounds.