Pension GMP advise

bobelliott

Hi Everyone.
Please can anyone advise regarding my recent offer from Pearl Freedom Bond.
The original offer of the total pension fund was £21,873.00 which had not increased for the last 11 years would give me a part lump sum of £3,658.61.I requested to Pearl to hold this offer as I was complaining to the Financial Ombudsman who have now found in favour with the Pearl.
The Pearl have now sent me a new offer of total fund £22,258.00 but the part lump sum is only £2,914.71 some £744.00 less and the GMP is about the same.
If I decide to leave it where it is for a couple of years do you think that the annuity rates might improve giving me a better deal.
I cannot move it out of the Pearl as it has GMP and nobody is interested.
Thank you all for your time.
regards.
Bob.

annie1975_2

Im sure someone will be along soon who knows more about these things.
But I always thought you could have 25% as a lump sum,and looking at your figured they are no where near 25%?
Have you spoken to them about how they get to that figure?

IFAking

Bob,

The GMP benefits would have accrued as a result of the transfer in to Pearl from a contracted out occupational pension scheme. The GMP benefits are the minimum contractual requirement Pearl have to provide from a specified date (typically age 65). Usually a pension would provide 25% of the fund as a tax free cash lump sum (in your case £5,564.50). However, GMP benefits take precedence over tax free cash entitlement, and therefore you are only entitled to tax free cash from any amount in the fund that is not required to meet the GMP liability. What Pearl are effectively telling you is that they would need £19,343.29 to meet the GMP, hence leaving you with a considerably lower tax free cash lump sum. The reason the figures have changed since the previous valuation is that annuity rates have fallen, the fund has barely grown, and Pearl therefore need a higher amount to meet the GMP liability.

Predicting annuity rates over the next couple of years is nigh on impossible, but there are reasons for believing that rates are likely to get worse, particularly for men. At the present time, you would get a higher annuity rate than a woman of the same age, as men do not live as long and gender plays a part in annuity pricing. However, from 21st December 2012 insurers will no longer be able to price their products based on gender (the result of an EU ruling) and therefore rates between genders will have to be harmonised. Despite the change being less than 3 months away, there is no clear picture as to how this will be done. What we expect to happen is that male rates will fall and female rates will rise so that they meet somewhere in the middle of the current figures. We would anticipate the fall in male rates to be around the 5% mark. There is also the shadow of Solvency 2 on the horizon at some point, which is likely to reduce rates further as insurers will be forced to hold more reserves.

You say that no-one will accept GMP liabilities. In terms of simply transferring the fund to another provider, my experience would back up your statement. However, if you are annuitising, there is no reason why an annuity provider would not accept the GMP liability provided their annuity rates are sufficient to meet the GMP liability in full. Therefore you are free to purchase your annuity from whichever provider offers you the best terms, and Pearl are unlikely to have offered you anything close to the best annuity rate available. This would be particularly true if you smoke or suffer from a medical condition that could potentially diminish your life expectancy as you would then qualify for an enhanced rate. If a company offers a higher annuity rate, they will need less of the fund to meet the GMP liability and ergo you can have a higher amount of tax free cash. I would approach an IFA to get advice. If you don't have one, there are many companies advertising on the internet, but my advice would be to select a company who can offer advice rather than someone like Age Partnership who cannot offer advice.

I hope this helps.

dunstonh

which had not increased for the last 11 years

Like many plans with guarantees, the value of the plan is irrelevent as the guarantee is where the value is.

I cannot move it out of the Pearl as it has GMP and nobody is interested.

you can but not if you are asking others to accept the GMP. They will accept without the GMP. Although that could be a bad move.

[Deleted User]

dunstonh wrote: »

Like many plans with guarantees, the value of the plan is irrelevent as the guarantee is where the value is.

Hi Dunston, Somewhat confused with this comment - doesn't it follow that if a policy has a GAR, then the amount of pension payable would be higher as the fund value increases. As always, I'd appreciate your explanation.

dunstonh

[quote=[Deleted User];56318807]Hi Dunston, Somewhat confused with this comment - doesn't it follow that if a policy has a GAR, then the amount of pension payable would be higher as the fund value increases. As always, I'd appreciate your explanation.[/QUOTE]

GAR is just one type of guarantee. There are others such as guaranteed minimum pension and guaranteed minimum maturity value. Sticking with Pearl, who are the provider mentioned on this thread, they have plans with GARs, GMPs and guaranteed minimum maturity values (the latter being some of their section 226 retirement annuity contracts).