GAR Pension advice

WeaponX

My father is coming up to retirement and is wondering what to do with his annuity. He has pensions with Standard Life, Aviva, Barclays and Phoenix Life which are all GARs.

In Martin's guide it states "You can still take the "open market option" if you have a GAR" but in the letters sent by his pension providers it says that he will lose his GAR if he chooses the open market option and buy an annuity from another provider. Can someone clarify this? Would he still keep his GAR if he transfer to another provider?

He is looking to see an IFA about his pension options but what's the general opinion about GARs and what do do with them?

Thanks in advance.

Aegis

GARs can be phenomenally good value and are always lost if you transfer or use the open market option. Some of them are even lost if you choose to delay your retirement by as little as a day.

However, like so many other aspects of pensions, the devil is in the details, so you need to know what you have to appreciate the value. In general, it's worth comparing the GAR with an annuity on the open market on a like for like basis to get a feel for how good it is. For example, you might find that you have a GAR of 10% for a sole life level annuity with no guarantee period, so you need to do a search for the same type of annuity to make a sensible comparison. You may well find that this offers 6% of less for the same basic product, at which point you need to make decisions as to how much the other options (e.g. joint life, guarantees, value protection, indexation, etc) are worth to you. You might also need to compare annuitisation with income drawdown to really take account of all your retirement options.

In short, there's no easy answer at all to this question even when all the facts are known, therefore it's pretty much impossible to give a good answer over this medium.

dunstonh

In Martin's guide it states "You can still take the "open market option" if you have a GAR" but in the letters sent by his pension providers it says that he will lose his GAR if he chooses the open market option and buy an annuity from another provider. Can someone clarify this?

GARs sometimes come with terms that can make them appear valuable on one hnd but worthless on the other. For example, one may say that the GAR is only paid if the income is paid annually in arrears with no spouse provision and no guarantee period (I've seen one like that). So, there are occassions that a GAR should not be taken. Also, not all GARs are great. I saw one recently that was just 3%.

The GAR only exists with that provider. Not if OMO or transfer is done (Transfer is used with multiple pension pots. OMO is used with one pension - caveats apply).

CannySaver_2

Hi

A few practical steps:

1. Get the existing providers to tell you exactly what level the GARs are and what form the annuity will take e.g. single / joint life, indexed, guarantee periods etc (I've had some friends with GARs who have still been able to have a choice of options, others who have not and have had to take what's on offer)

2. Compare the GARs with the best alternative standard annuity in the open market by using a pension annuity calculator such as the example shown. That will tell you whether a normal annuity beats the GARs. As others have rightly said if the Open Market Option is used (and it should always be considered) then the GARs are lost

3. Your father should also check whether or not he qualifies for an enhanced annuity due to health or lifestyle issues, this is best done through an IFA, who will generally run through the initial stages without charging. Again this is simply to check whether an enhanced annuity can provide a better rate than the GARs

4. Lastly, consider other retirement income options such as Income Drawdown, Fixed Term Annuity etc, however given where current GAD rates i.e. about the same level as a normal annuity, they are unlikely to beat the GARs for income, although there are of course other reasons to use Income Drawdown.

If after going through this process the Annuity with the GARs is the best option then go for it, he'll know he's got the best option.

I hope this helps.

The Canny Saver