Transfer of RAP to SIPP

savingforoz

I have an old style retirement annuity premium pension with Aviva. The current transfer value is £7,431.22 and the monthly premium is £10. The guaranteed sum at the maturity date of the policy (April 2021, when I turn 60) is £7,579.00. The guaranteed annuity rate is 9.503%.

Given that the fund value is so small, and that the premiums can't increase, I am considering transferring the fund into my SIPP. I know I will lose the guaranteed annuity rate but as the fund is so small I can't see that's a real issue.

I am 50 at present, female, and planning to downshift to a different line of work, and to retire at 70. Besides this tiny fund, I have other pension arrangements that are on course to provide me with enough to live comfortably in retirement, so I can't see any real reason not to transfer the RAP to my SIPP. Or am I missing something here?

All help appreciated!

savingforoz

I've done some rough calculations as to how much the fund would have to grow to match the GAR and it looks pretty even between the two - however, I believe the GAR would be fixed and if and when I buy an annuity at 70+ I'd prefer a rising one. Which would lead me to favour transferring the RAP to my SIPP.

Also, I'd be able to access the funds in a SIPP via income drawdown, so again that makes me think the transfer would be worthwhile.

Any ideas, anyone?

dunstonh

I believe the GAR would be fixed and if and when I buy an annuity at 70+ I'd prefer a rising one.

That probably isnt a good idea as the breakeven point would likely be around age 100. Especially if you compare the open market indexed rate vs the level guaranteed rate. That may take it well in to your 100s.

gadgetmind

I'd find it hard to turn down those guarantees, with they do tend to paint you into a corner with restrictions regards the annuity.

However, don't dismiss level annuities: it take a long time for a rising annuity to have paid out the same amount in real terms. Also bear in mind the risks regards SIPP value and that HMG keep meddling with the amount you can draw down.

savingforoz

Thanks, dunstonh - given the small amount involved though, would it make much difference?

I do find it frustrating that Aviva have told me they can't tell me what the charges on the policy are (quote - "All charges are incorporated within the rates used to calculate the guaranteed benefit; therefore it is not possible to provide a specific breakdown of the charges") and that I have no control over the funds - given the small amount involved, I am still tempted to go for the SIPP transfer. Would I be right in thinking that if my fund were larger, it would be better to leave it where it is, but as the amount is so small then I don't stand to lose much and possibly gain a lot more by transferring it? (a crystal ball would obviously be useful here, but hey ho!)

dunstonh

I do find it frustrating that Aviva have told me they can't tell me what the charges on the policy are

Old fashioned plans with charges handled within the fund with none on the contract. It is actually possible to work them out but it requires software.

and that I have no control over the funds

Ignoring the small amount, if the GARs are 50% higher than open market rate then any alternative is going to have to perform 50% better just to get the same. Is that likely? That is what you are really measuring. Your confidence in the remaining time to beat the difference.

atush

I would look at it like this.

You say you will have enough pension to live on from other sources. So I assume, your Sipp and this GAR policy are 'bonus' money. So why not let it go on as is, and compare it to your Sipp later when you take it- a kind of 'experiment' perhaps?

In any case, I assume you can take it much ealier than 70- what age can you take it from? you can always put that high rate annuity income into your SIPP during the years you take it and are still working.

savingforoz

Thanks, atush, that's an interesting idea ref putting the income into the SIPP. I can access the RAP fund from age 60.

The SIPP isn't bonus money; when I said I'd have enough from other sources I meant my SIPP and ISA, plus a Standard Life pension and the State Pension.

I think I will leave it where it is for now and review further down the line after monitoring how the RAP fund performs.