Annuity indexing on Section 32 pension?

Richf

I accrued a small SERPS pension in respect of 3 year's service ending in 1982, which I subsequently in 1989 transferred from the company scheme to Norwich Union (now Aviva) under a section 32 transfer plan.
The guaranteed minimum pension is stated to be £138.84 per annum increased by 8.5% compound until I'm 65 in 2015, which by my reckoning gives £1889 per annum. I understand that although the fund itself is currently only valued at £13,500, they still have to pay the GMP.

My question is: Will the £1889 be indexed? I had understood that as this was a replacement for part of a government pension, this was so (and very welcome too!), but...

In the contract it says "Provision may be made for all or any pensions purchased under this Condition to increase at a percentage rate not exceeding in total 8.5% compound from each anniversary of the benefit date [...] provided that no pension may exceed the maximum pension increased by the accumulated increase in the RPI [...] or by 3% compound per annum whichever is the greater."

In this confusing paragraph, what is the significance of the word "may"? Does it mean they get the choice of whether to do so or not? in which case it is a complete waste of paper. Or is it me that gets the choice? or have I missed the point - is there relevant legislation I have missed?

mrschaucer

Keeping it simple - as I understand it, as long as you take the pension from Aviva on your specified retiral date, then yes, they have to pay the full amount of gmp even if the fund isn't large enough. This gmp from Aviva will be in the form of a flat rate annuity which will be increased by the GOV, not Aviva, from your State Pension Age with your state pension increases. I think!

RichandJ

mrschaucer wrote: »

Keeping it simple - as I understand it, as long as you take the pension from Aviva on your specified retiral date, then yes, they have to pay the full amount of gmp even if the fund isn't large enough. This gmp from Aviva will be in the form of a flat rate annuity which will be increased by the GOV, not Aviva, from your State Pension Age with your state pension increases. I think!

Basically correct assuming there is nothing else in the S32 apart from GMP.

OP, GMP revaluation works like this, it will be increased by 8.5% compound on each 6th April between your date of leaving the original scheme and your State Pension Age date. However, the last 6th April does not get the increase, so work out how many 6/4s there are between the two dates & subtract one before doing the increase calc.

From your initial figures it is highly unlikely you could achieve the same income by transferring the funds elsewhere even if it will be non increasing in payment. Must stress, this is not advice, just experience.

Richf

Thanks for this input which was helpful...

I found on the pension advisory service website the following:

"... However, for that part of the pension earned before 6 April 1997, ...there is no legislation that requires schemes to increase this pension unless the scheme was contracted-out of the State Earnings Related Pension Scheme (SERPS).

The rules of contracting-out require that increases be applied to the Guaranteed Minimum Pension (GMP) as follows:

no increase for GMPs accrued before 6 April 1988 (but increases on these are paid by the government along with the State Pension for those living in a country eligible for state pension increases. "

But I can't find any record anywhere of what escalation rate to expect from the government. .. and do the proposed flat rate pension proposed drive a coach and horses through it anyway? It all seems incredibly vague...

xylophone

See this http://www.pensionsadvisoryservice.org.uk/workplace-pension-schemes/final-salary-schemes/revaluation http://www.opalliance.org.uk/increases.htm but also http://www.pensionsadvisoryservice.o...nual-increases
and http://dl.dropbox.com/u/452108/20110217094333898.pdf
http://www.ariespensions.co.uk/public/analysis/02032011.htm

Richf

Thanks for the information. I now understand that the increases in GMP at 8.5% p.a. are so much higher than recent governement increases that HMG won't be increasing it for a long time to come.

BUT...the contract talks about Norwich Union (now Aviva) increasing the annual pension post-retirement. Which comes back to the original question - what is the significance of 'may', and why define such increases in such detail, if it was always to have been a government, rather than a pension-provider's responsibility?