Trustee Proposed Section 32 Buyout Plan

kaswan

My husband is retiring in May at age 60. He has a small pension from a previous employment that matures on his birthday. I've checked all the documentation we have to see if there are any guarantees with this policy but can't find anything. The pension plan was a Scottish Equitable Exsel plus Group Pension Plan which at some time in the past became a Section 32 buyout plan now with Aegon. I have spoken to a retirement planning company as we are considering amalgamating a few small pension funds to buy an annuity. They suggested getting a transfer value so that it could be transferred to enable the purchase of the annuity. I found that a bit strange as the plan matures in May and the transfer value is less than the current value so it seems we would incur unnecessary costs. Would we be better waiting to see what the company send us as to the annuity they would be offering. The amount is only around £11,000

dunstonh

The pension plan was a Scottish Equitable Exsel plus Group Pension Plan which at some time in the past became a Section 32 buyout plan now with Aegon.

Section 32 buy out bonds often off guarantees. Whilst nothing says they have to, it is unusual when they do not.

They suggested getting a transfer value so that it could be transferred to enable the purchase of the annuity. I found that a bit strange as the plan matures in May and the transfer value is less than the current value so it seems we would incur unnecessary costs.

You cannot use the open market option with a section 32 buy out bond. You have to transfer it under the immediate vesting personal pension method.

However, I am concerned that this company is asking you to get information. Why are they not doing it or is it one of these DIY companies where you do the work and they keep the commission? If it is an IFA, then you would expect the IFA to obtain current information and projected information.

kaswan

I understand that the company offer different levels of service. They provide quotes for the best annuity rates and for that we give them the information or we could use their financial advice service which involves additional fees. My husband will also get a final salary pension. We've looked at what we need and have decided that just want to add these different plans together ( if that gives us the best return) and to take a single life annuity with a 5 year guarantee and with maximum lump sum. I don't really want to pay fees for advice when we know what we want.

dunstonh

We've looked at what we need and have decided that just want to add these different plans together

You cant add them together. An IFA has to sign off on a final salary pension scheme transfer. There are virtually no providers that will take it otherwise. Finding an IFA that is willing to do that is unlikely as it is almost certainly the wrong option.

I don't really want to pay fees for advice when we know what we want.

What you want is almost certainly a financial disaster that will cost you far more than the fees of an IFA. Indeed, the commission being earned by this company you are using is probably little different to IFA fees. (the annuity factors in the commission being paid the exact same way as a the IFA fee would be factored in. If the fee and commission are the same then the annuity rate would be the same).

jamesd

If the pension planning company phoned you first, stop doing business with them. That's a prohibited activity and you don't really want to be involved with companies that break the rules intended to protect you at such an early stage in the relationship.

Was it a Group Personal Pension Plan or some other form of Group Pension Plan that was transferred into the Section 32? The first probably won't have any special guarantees attached but you should still ask. Sometimes a company will just transfer all types into a section 32 even though there's nothing to protect from some parts of the pot.

What sort of total pension pot value is involved? Wondering if finding a local IFA might be the best approach. Dunstonh is fond of noting that he can usually get more money paid by an annuity than the well known online names, by negotiating a bit.

Sixty is also pretty early to be buying an annuity, way before they start to become really good value, some time after age 75.

kaswan

My apologies - I wasn't clear in my earlier post. We are taking the final salary pension. I know transferring it would be a disaster as it has increases linked to RPI.
It is the other smaller pension plans from previous employments that we were looking to add together as I understand that we would get a better rate for a larger pot. The biggest pot has £99,000 in it and we have another with £30,000, one with £17,000 and then the S32 with £11,000

The company was suggested to us by my husband's previous company and are reputable.

It was a group pension plan - the brochure we were given when it was taken out says it is a Exsel Plus Executive Pension Plan. It seems we would be best to leave the S32 plan until maturity and see what we are offered.

jamesd - I'm a bit confused that you say 60 is early to buy an annuity. My husband's work finished last year and as he will not get state pension until he is 65 we would be looking at this annuity to provide living expenses together with the final salary pension and my small pension.

We saw an IFA when I retired last year and he advised us to transfer my final salary pension into a drawdown arrangement. We didn't take this advice as it was far too risky for us. It was a small pension but included increases in line with RPI. I suppose this has made me a bit cautious about paying an IFA.

mania112

You probably could save a bit by consolidating those pensions.

60 is early for an Annuity, but if cash is required at 60, there are other options - drawdown being the basis.

Don't forget with an Annuity you're locked into to a) todays rates (which are poor) b) his age (which is young) and c) his health today (which is ok?)

In the future, we hope all those things would lead to a better Income (although no one wants to get older or more ill, but you get the point!)

dunstonh

I suppose this has made me a bit cautious about paying an IFA.

I saw a doctor that wanted to remove one of my daughters Kidneys. A second opinion saw that didnt happen. It didnt put me off ever using a doctor again. I am very surprised to see an IFA recommend drawdown on a final salary scheme. That would be rare (probably only right in about 2-3% of cases).

You will almost certainly find that buying the annuity via an IFA is the best value option with pot of that size. The commission option is likely to be higher than the fee option plus IFAs tend to get the best annuity rates. If the EPP still exists, it may also have the potential to pay a greater tax free cash lump sum (as could the section 32).

jamesd

There are two major ways to take an income from a pension pot:

1. Buying an annuity.
2. Using income drawdown, which means leaving the money invested and taking an income from it.

If using income drawdown you'd normally adjust the investment mixture to reduce the volatility (up and down movements in value) and have at least two or three years of planned income in a savings account from which you take your regular income, to provide smoothing of the income. The tax free lump sum can be used to fund this; the rest could be put into a S&S ISA to provide an ongoing tax free income, or partly there and partly used to draw on to boost income until the other pensions start.

One major advantage of income drawdown is that it automatically provides a 100% spouse's pension if the person with the pension dies first.

What is the expected value of his work final salary and state pensions? I'm wondering if he might get close to £20,000. At that level there's another option called Flexible Drawdown that makes it possible to draw on the whole of a pension pot.

Dunstonh is right about an IFA.

kaswan

Really appreciate your responses. I'm starting to think I need to talk to an IFA. Not sure what you mean by the commission option being higher than the fee option. Is it that if we pay a fee to the advisor that this could be less than paying say 1% of the total pension pot as commision. Is there also commision paid to the annuity provider by them reducing our pot by a percentage?

dunstonh

Is it that if we pay a fee to the advisor that this could be less than paying say 1% of the total pension pot as commision.

Commission on annuities ranges from 1% to 2.5% depending on provider. Fee is agreed by you but can be collected from the pension using the commission system.

So a £1000 fee would give the same outcome as a £1000 commission.

IFAs can also haggle the rate. Especially on enhanced rates. I typically find 10-15% is the increase above first figures.