Section 32 Buyout bond question

samsonite

I have a Section 32 Buyout bond with Clerical Medical which is due to reach my nominated pension age in Nov 2012 - I will be 65. My understanding is that Protected Rights and GMP restrictions have now all been removed.

Therefore, can I transfer the cash value of the Buyout bond to a SIPP?

I also have another smaller pension with Phoenix Life, which I intend to add to the SIPP.

My intention is to use the SIPP for phased Drawdown (just two phases), and taking the 25% tax free at each phase - there would be more than sufficient funds to achieve this. Drawdown does not need to start immediately, my wife and I have other pensions. My other pensions do not qualify me for Flexible Drawdown, but they are sufficient.

One last question. What do the MoneySaving Experts think of Alliance Trust as a SIPP/Drawdown company? I do not intend to do much equity, funds etc trading once the SIPP is established.

Thank you for the advice.

dunstonh

My understanding is that Protected Rights and GMP restrictions have now all been removed.

That is not correct. GMP still exists.

Therefore, can I transfer the cash value of the Buyout bond to a SIPP?

You have been able to transfer it from the day you took it out.

samsonite

Does GMP affect or restrict the transfer from a Section 32 Buyout bond?

jamesd

Alliance Trust isn't too bad if you do minimal buying and selling.

Even if you don't need the income it's quite likely to be best to take the highest possible income. If you don't need it you can recycle it into new pension contributions to get another tax free lump sum, limited to £3,600 gross a year if not working. Or you can accumulate it in a stocks and shares ISA with the same investments as in the pension if you want to build up a lump sum.

If you're close to the £20,000 threshold for Flexible Drawdown you could consider deferring the state pensions for a while. At 10.4% increase per year of deferral and with around three more years to go until the threshold is adjusted that'll be enough for some people to get over the threshold even without using some of their pension pot for a single life annuity to edge them over it. If you're close, this ability to get over the limit then withdraw lots of money can greatly reward large pension contributions that are then withdrawn relatively rapidly.

xylophone

http://www.kirkrice.co.uk/blog/guaranteed-minimum-pensions-explained/

http://theexpert.axa.co.uk/andyzanelli/17-expertsexperts/axaexpertanyzanelli/261-10-things-to-know-about-the-abolition-of-protected-rights

might be worth a read.

dunstonh

Does GMP affect or restrict the transfer from a Section 32 Buyout bond?

Only if you are attempting to keep the GMP. If you are not, then no it doesnt as it would be lost on transfer to a SIPP or personal pension.

samsonite

Thank you all for the help. I now realise that I may be better off aiming for flexible drawdown. Could I ask your opinion on the following 3 points?

1. I have now received my annuity quote from Phoenix Life, and it is much better than I had anticipated. The policy is currently worth £10399 and they are offering an annual pension of £1155. This is level payments, 5 year guarantee but no spouse’s pension. There are lower alternatives offered to include combinations of tax free lump sum, yearly increases and spouse’s pension with overlap. There is no GMP involved with this pension. Could I possibly improve on this offer in the open market?

2. If I add the Phoenix Life annuity to my other pensions, instead of moving it to a SIPP, I would then have a shortfall of £3555 to achieve the £20k for flexible drawdown. Assuming that I can move my Clerical Medical S32 into a SIPP, am I correct in thinking that it would probably be worthwhile buying another annuity with part of the SIPP? I calculate that the annuity would cost about £95k including 25% tax free lump sum.

3. The SIPP companies I have spoken to so far want me to take financial advice before they will accept transfer of my S32 to a SIPP. How much is advice likely to cost?

mania112

1. So the Phoenix Life is just a standard Personal Pension? circa £1k per annum for a £10k fund seems too good to be true, to me. Either way, there's no harm in having an IFA check the open market before you make a decision.

2. I assume your CM Section 32 has some unique benefits? Have you considered what you'll be giving up by transferring away from it?

Why are you considering a SIPP? These are normally more expensive contracts than others.

3. Let's say 3-5% of the total transfer as a guide. You can normally opt to pay this up front or have it taken out of the pension monies.

- It seems like you could do with an IFA take a look at your situation and iron out your objectives. On the face of it, I can't make out what you're trying to achieve, so probably worth the costs in the long term.

EDIT: And to be clear (or muddy the waters further!) Flexible Drawdown requires you to have an EXISTING £20,000 secured annual pension BEFORE you can explore the option of Flexible Drawdown.

This means the total sum of State Pension, Company pension and/or Lifetime Annuity needs to be paying you £20k pa before you can use Flexible Drawdown on anything else (Personal Pensions you're converting to Drawdown).

I wasn't sure if you understood that?

samsonite

Yes, I do understand that I require £20k pa pension income before starting flexible drawdown. That is my reason for crystallising (if that is the correct term) part of the SIPP to buy an annuity for an income of £3555 pa and take a 25% tax free from that part of my SIPP at the same time. This will result in the combination of my state pension, various company pensions, annuity from Phoenix Life and the additional annuity purchased from my SIPP exceeding the £20k limit.

Once I have established the £20k pa pension income, I plan to crystallise the remainder of my SIPP, taking the 25% tax free. My objective is to have control of my pension pot and to extract the cash from my SIPP at a faster rate than the CM annuity would allow. Any excess income can be invested in an ISA or other investment.

To my mind my CM S32 does not have any unique benefits that I would want. These are the figures (all rounded): -

Fund value £253k
Tax free cash sum £63k
Pre 6.4.88 GMP £1082
Post 6.4.88 GMP £2659
Excess pension £3975

Total pension £7717 pa

The GMP part will increase annually, but the excess pension will be level. Therefore, I will be 85 years old before CM has paid out the £253k, assuming I make it to 85.

My alternative is to move £253k into a SIPP.

Buy annuity for an income of £3555 plus take 25% tax free - cost £71.1k for the annuity and £23.7k tax free. Are these figure correct?

Crystallise £158k
Take 25% tax free £39.5k
£118.5k remains invested in the SIPP and is under my control.
Total tax free under my alternative is £23.7K plus £39.5k = £63.2k

Is my alternative not possible?

Linton

mania112 wrote: »

1. So the Phoenix Life is just a standard Personal Pension? circa £1k per annum for a £10k fund seems too good to be true, to me. Either way, there's no harm in having an IFA check the open market before you make a decision.

...

Its perfectly reasonable for GAR schemes taken out many years ago. I have a higher % GAR on one of my pensions formerly with Scot Mutual and now also transferred to Phoenix. The OP is very unlikely to do better on the open market unless there are health issues.

phil.s_3

I work for what I believe to be one of the best SIPP providers. The advice does cost but their SIPP process is broken down in to 10 stages. The charge only applies after stage 7 and nearly every single client they see decides to opt for a SIPP, the odd few that have decided to leave their current pensions have not been charged. I will not print their name on here but will be happy if you send me a private message to tell you.

The advice is only provided generally to say whether a SIPP is suitable and the investments are your choice. You will pay £0 out of your own pocket with us.