Occupational Pension AVC

sabelu

Is there any chance thar GMP will e able to be released into SIPPS shortly/eventually under any proposed new legislation?

sabelu

This AVC was finally transferred on 22nd Feb following months of deliberation and the HL Sipp opened. I was upset at the length of time to set this up from the initial request in Aug '07 to Feb '08 and what I believe the loss of value, 4.5k, altho through a turbulent market the loss from the initial quotation in December to Feb was greater due to WW dragging their heels. My expectation would have been around 2.5-3k. Therefore I complained to WW and copied the FS, WW have responded outlining the reasons for delay/loss of equity but they have also said 'The amount of time taken from your initial request through to payment of the transfer value does appear to be in excess of the timescales that we would normally expect and we apologise for this. Hopefully the explanation given above does provide some background to the steps we have needed to take and the reasons for some of the delays.'

Should I take this further?

Is it grounds for some recompense?

sabelu

Asked a question of the pension actuaries around the GMP regarding any loss of benefits or annuities if I transfer it, there response was -

I can confirm that the GMP benefit accumulated during your pensionable service with the xxxx Plc Pension Scheme amounted to £456.04 a year at 24 March 2000. This figure will revalue between 24 March 2000 and your 65th birthday by 6.25% a year, providing a pension of £1953.64 a year at age 65.
Should you elect to transfer the value of this benefit (quoted as £17,250 in September 2008) to an alternative arrangement the benefit provided at retirement may not be equivalent to that highlighted above. It is on this point that you should take independent financial advice as we are unable to comment on such matters.

Has anyone any comments or observations regarding this?

MikeJones_2

Hi sabelu,

General observations
One reason for transferring the GMP would be if you thought that the corresponding transfer value, if invested elsewhere, would produce a pension 'pot' that would buy you a greater pension than the guaranteed £1,953.64 p.a. at age 65 if you left it within its current arrangement.

You would also have to consider future unknown investment growth and prevailing annuity rates at the time you drew the pension.

Not forgetting whether the required rate of return to achieve this would meet with your attitude to risk. (Your GMP appears to have been calculated using 24 complete tax years making the payment date after 5/4/2024 but before 6/4/2025).

A GMP carries certain other benefits such as spouse's pension on your death (depending upon your gender and your contracted-out service).

GMP also provides within it a level of pension escalation (depending upon your contracted-out service).

GMP conversion
You might also want to read and consider about proposed legislation which will come into effect so that from April/May 2009, defined benefit pension schemes can seek to convert GMP into 'scheme benefits'. These benefits will have to be certified as 'actuarially equivalent to' the GMP, if a scheme does seek to change from GMP to scheme pension.

Quoting from the DWP documentation

In September 2008 the Government began consultation on draft regulations which will have the effect of permitting the trustees of defined benefit contracted-out occupational pension schemes to convert their scheme’s Guaranteed Minimum Pension (GMP) liabilities into ordinary scheme benefits which are of at least equal actuarial value. The proposed legislation would also permit conversion of an individual's GMP on transfer out of the scheme, with the individual's consent.

- Guaranteed Minimum Pension (Gmp) Conversion - The Occupational Pension Schemes (Contracting-Out)(Amendment) Regulations 2009 (pdf - 13 pages)

Security
Finally, you'd need to weigh up the security of your existing pension provision, the Pension Protection Fund and whether you'd be covered by it, and the security provided by the pension arrangement that you're considering transferring the GMP into.

Hope that helps to add food for thought.

Mike

I work in the field of Pension Education and Pension Guidance in the UK. I am a member of the Specialist Pensions Forum as well as being a Voluntary Adviser for The Pensions Advisory Service. I work with scheme members, employers, trustees, scheme administrators and advisers on most things to do with employer sponsored pension schemes. The views expressed by me in this thread are my personal opinions. You should seek professional advice from an appropriately experienced and qualified adviser. I am not an IFA.

Debt_Free_Chick

Hi Mike

Current consensus is that the DWP's proposal on GMP conversion are not sufficiently flexible and unlikely to be taken up - no guidance on equalisation (as you know "uncertain" for GMP; compulsory for scheme benefits and no idea what the DWP wants us to do if GMPs are converted); no guidance on "good practice" from the Regulator and none expected - as you can imagine, many Trustees are not going to run the risk of TPR later ruling that certain requirements are to be met, so we'll just ...... wait. And GMP conversion will wither on the vine, like so many other costly exercises of a similar nature in the past 30 years (remember Transfer Payments to extinguish GMP rights back to SERPS on transfer of the excess!!!!)

Fond Regards

(You know who!!)

sabelu

Thanks for the information Mike and DFC will give it thought.

I see that I have several options

1. Adopt the bird in the hand approach and leave well alone.

2. Wait until my situation is clearer.

3. Move to SIPP asap and invest higher risk for several years then reduce the investment risk at a later date. This gives me the flexibilty also to at some stage take 20% tax free sum and reinvest the rest in a deferred drawdown plan.

sabelu

Is the most flexible option always the best option?

sabelu

Received this reference my GMP from administrators today, am contemplating moving this to my SIPP, can anyone put it into plain english please?


I can confirm that if you decide to retire from the above Scheme before your 65th birthday the pension in respect of your remaining xxxxxxxxxx fund will be brought into payment immediately. Once in payment the pension will receive an annual increase, on 1 October based on the previous July's RPI figure, up to a maximum of 2.5%.
When you reach age 65 the GMP figure of £xxxx a year highlighted in my previous email will begin to be paid. If the value of your pension already in payment is less than £xxxx your benefit will be 'stepped up' to this level. If your pension already in payment is greater than £xxxx the benefit will not change and the GMP will form part your existing pension. From age 65 the GMP will receive an annual increase, on 1 October based on the previous September's RPI figure, up to a maximum of 3%.
In the event of death, either before or after retirement a widow's GMP will become payable to your surviving spouse, equivalent to 50% of the value of your GMP at date of death. The widows GMP will receive an annual increase, on 1 October based on the previous September's RPI figure, up to a maximum of 3% regardless of your or your widow's age.