Section 32 transfer valuation

jem16

gettingolder wrote: »

There are 2 reasons to transfer:-
1. I don't want to buy an annuity. I believe drawndown offers much better flexibility. The rest of my pension fund is invested this way and has proved to be a wise choice over the last 10 years despite the chaos in the financial markets.
2. By transferring I can take advantage of the relaxed Protected Rights rules and take 25% tax free which is not available under the rules of the Section 32 policy.

Good enough reasons.

Down to you now as to wehther or not you wish to lose the 12%.

gettingolder_2

Thank you everyone for your input.
However, I am not any closer to understanding whether the 12% reduction on the transfer value below the cost of buying the annuity is reasonable. Is there legislation that controls how it is calculated? Can it be contested or do I just accept the insurer knows best?

dunstonh

What is the actual fund value?
What is the fund value required to meet the GMP?

Is there legislation that controls how it is calculated?

If it was a transfer penalty then it would be in the contract. If its an increase to meet the GMP then its a manual calculation. It could even be an MVR potentially (some providers wipe that out if you use their in-house option but wont if you transfer out).

At the moment, its difficult to know what the difference is down to. I suspect it is an increment to meet the GMP but cant be sure.

gettingolder_2

The GMP is £5,879.
The with-profits value is £77,423.
The transfer value is £105,273 uplifted to fund GMP.
The illustration to fund an annuity from Canada Life is £119,844.

As you can see the transfer value is about 12% less than the cost to buy the annuity.

Linton

gettingolder wrote: »

The GMP is £5,879.
The with-profits value is £77,423.
The transfer value is £105,273 uplifted to fund GMP.
The illustration to fund an annuity from Canada Life is £119,844.

As you can see the transfer value is about 12% less than the cost to buy the annuity.

The insurance company could well be losing money when they provide you with the guaranteed annuity. So they will only give you a transfer value based on what your investments with them are actually worth rather than what it costs them to provide the annuity.

redbuzzard

I have one of these and I am just in the process of trying to work it out!

I appreciate the reasons for transferring, but be very sure. Mine isn't payable for 5 years, but it includes a GMP of IIRC £466 p.a. (in 1987) that is revalued annually by 8.5% (that is an actual 8.5%, not a cap on RPI), making it £5856 by 2018. This will be far more than the fund would currently buy. I think it is a level annuity, but it does include a spouse's pension at 50%. As far as I can work out so far, the GMP comes out of the "reserved" funds (a Scottish Equitable term I think) and a further annuity can be purchased from the "non-reserved" funds for which there appears to be a guaranteed annuity rate of 11.1% (at 65).

I have been told that the non-reserved funds could be transferred out on their own (e.g. to my SIPP). Presumably they don't mind this if there a guaranteed annuity rate that they would rather not be paying.

From the figures you give, it sounds to me as if they could be offering you a transfer value which although it is less than you need to buy the same annuity elsewhere is actually higher than the money in the "fund" - so they will "subsidise" you to transfer out, but it will still cost them less than providing the guaranteed annuity.

E&OE - I haven't quite got my head around it yet.