Basic Pension Advice (confused by final bonus figures)

glynm15

Hi all,

I would like some basic pension advice regarding my father's pension pot.

He is 64 in July this year.

He had worked for 45 years so is entitled to his full state pension. He has had 3 private pensions for about 20 years.

We have received through statements with figures on etc.

My father would like to take to 25% lump sum then buy an annuity.

The confusion on our part is the figures.

Example being:

Current Fund Value £32,000 Current Transfer Value £46,000 (including £14,000 final bonus).

What figure should i use when shopping around for an annuity for him?
If my father was to retire this year at 64 would he lose the final bonus?

That is our main query really - would my dad lose out drastically if he was to retire next month i.e the final bonus figure.

Also does he combine the 3 pensions. 2 are private and the 3rd is a works one. He is currently off sick (getting full pay) and wants to know if has to go back or can afford to retire now.

Any advice is appreciated.

Thanks in advance.

dunstonh

What figure should i use when shopping around for an annuity for him?

Transfer value unless there is a protected value involved.
Why are you doing the shopping around and not an IFA? You wont have access to all providers and if you use the DIY routes then they just keep the commission they would have paid the IFA anyway.

Are you aware of the quirks to be able to do it for him? For example, you wont be using open market option but Immediate vesting personal pension. Or if he is off sick,then he could qualify for enhanced terms and most of those companies only transact via IFAs.

RetirementAngel

Use the 46,000. Final bonuses are a tricky area. You won't lose it all by cashing it in early but you might lose some. It needs an expert IFA to look at the small print to check.

The other thing to check is whether the current policy has a guaranteed annuity rate. It is clearly a with profits pension and many of those did offer guaranteed rates that could be better than anything the open market can offer.

Dunstonh is correct when he says that an IFA could look at all this for you without charging you anything more than you would pay through the commission.

Have a read of Martin's annuity guide - the link is at the top of the thread.

Good luck

chris1

dunstonh wrote: »

For example, you wont be using open market option but Immediate vesting personal pension.

What is the difference please?

dunstonh

chris1 wrote: »

What is the difference please?

Most providers (but not all) can only accept OMO from one provider. So, if you have multiple providers they will have to set up multiple annuities. Some wont accept OMO with multiple providers. The alternative is to IVPPP (immediate vesting personal pension). This is where the pensions are combined at the annuity provider into a single personal pension and then immediately commenced. You get one annuity and typically a better rate.

OMO sees the old provider pay the tax free cash. IVPPP sees the annuity provider pay the tax free cash. There are some regulatory and legislative differences at provider level but to the consumer, apart from the tax free cash being paid differently and the income level, there is no difference in the end result. So, a general rule of thumb is you OMO on one pension and IVPPP on multiple pensions.

Some pension types also cant OMO. They have to use IVPPP. e.g. Section 226 retirement annuity contracts and Section 32 buy out bonds along with some occupational pensions.

Some existing providers, when asking for the documents, have to be told which forms to issue. For most, if you ask for the OMO forms, that is all you will get. Most do not combine their forms or send both types out.

xylophone

Has your father obtained a state pension forecast?
http://www.direct.gov.uk/en/pensionsandretirementplanning/statepension/statepensionforecast/dg_10014008

chris1

dunstonh wrote: »

Most providers (but not all) can only accept OMO from one provider. So, if you have multiple providers they will have to set up multiple annuities. Some wont accept OMO with multiple providers. The alternative is to IVPPP...
Some pension types also cant OMO. They have to use IVPPP. e.g. Section 226 retirement annuity contracts...

Thanks very much for that explanation dunston. Please can I just check that I have understood this -

So someone with half a dozen pensions could end up with half a dozen separate annuities under OMO then. Is it better to transfer pensions ahead if time into one pot then look at OMO?

Do all providers offer IVPP?

When a RAC provider writes about their OMO, they actually mean IVPP?

When you look at annuity rate tables, is it likely to be the same for either OMO or IVPP?

Thanks!

dunstonh

So someone with half a dozen pensions could end up with half a dozen separate annuities under OMO then.

Yes. And that assumes the provider even allows it. Many will not. Plus, minimum premium usually applies to each one.

Is it better to transfer pensions ahead if time into one pot then look at OMO?

No. The IVPPP method is transfer. So, you use that method instead.

Do all providers offer IVPP?

yes

When a RAC provider writes about their OMO, they actually mean IVPP?

yes. The process is known as OMO. Even when IVPPP is used. (just to confuse things!)

When you look at annuity rate tables, is it likely to be the same for either OMO or IVPP?

With multiple pensions, you would expect the IVPPP to come in slightly better. With one pension, nothing in it.

xylophone

Make sure that your father's tax affairs are in order, especially when he comes to draw his state pension.

If he has not received a P161 to complete before his pension commences, contact HMRC.
http://www.hmrc.gov.uk/pensioners/approaching-why.htm

RetirementAngel

When your father gets annuity quotes, make sure he fills in a full medical questionnaire and make sure it is sent to all 10 annuity providers to find the best rate. You may find that even beats his works pension

glynm15

Thank you for the replies.

Took the best advice as getting an IFA.

So far so good. Answered our questions and at the min looks like getting a much better return the I looked into / expected.

My father has a full state pension forecast (worked full time for 43 years) and now this looks like a good bonus.

Thanks again.