Personal Pension "too small to purchase annuity"

Krisp_3

I got home last night to find that my partner's dad is having a little financial tussle with the financial adviser that brought a group personal pension scheme to his old firm. The scenario is a steel firm in Yorkshire (so no financial experts!). The company decided to set up a group personal pension scheme and the Financial Adviser talked them through it. However, it seems that none of the employees understood until now that this was not the same as an occupational scheme and therefore none of them understood that when the time came, they would have to purchase an annuity with the money in their pot.

So, my lovely father-in-law (J) is now sorting out his finances as he has now retired (after an industrial accident!). he has other occupational schemes which he is getting a pension from. He has been told by the FA that he needs to sort out an annuity for this scheme, but as the fund in his pot is under £5,000, he doesn't have enough to buy an annuity. On top of that, he can't have the money back either. J has no other personal schemes to add to this one. Is this correct?

I understand that this scheme was started quite recently, hence the small amount in J's pot - which begs the question, why did the FA believe it was suitable for someone so close to retirement? After all, he should have been able to make projections that would have made this immediately obvious. Also, if none of the rest of his colleagues understood the implications of a group personal pension scheme, then hasn't the FA misrepresented to them?

J has complained to the pension company but got no satisfaction. Now he is writing to the Ombudsman. But, does anyone know any other route to take? Surely he's entitled to his own money back? I know the government have strict rules about income drawdown amounts, but I also believe that they surely can't mean those strict rules to apply in this kind of circumstance. In the meantime, he has no access to this money...

Help, anyone?

Debt_Free_Chick

There's no way he'll get his money back.

Surely the Personal Pension provider he is currently with will offer an annuity? It may not be the best rate, but as you say, he has limited options elsewhere.

Are you sure that the requirement to buy an annuity is not in the small print somewhere? I would be staggered if it weren't, but it still won't enable him to get his money back.

If you have already gone to the Pensions Ombudsman, you will get passed to OPAS first, so you may just want to go directly there

http://www.opas.org.uk/

And if you've gone to the Financial Services Ombudsman, you'll get passed to the Pensions Ombudsman who will pass you on to OPAS!

HTH

Krisp_3

Thanks DFC! I'm not sure which Ombudsman he's gone too - I got all this secondhand, so I need to speak to J directly to find out... I don't think he necessarily wants to get his money back, but just access it in some way so that he gets the benefit of it (if you see what I mean).

EdInvestor

He can take 25% of the money in cash.

I'd be very surprised if the life company operating the Group Personal pension scheme would not offer an annuity, though it might indeed not be at a very competitive rate for such a small fund. Call up the company and ask.

Standard Life I know does 3,600 pound annuities for "Immediate Vesting Pensions" so it's certainly possible to find small annuities.

Pal

I think that L&G might also offer annuities for people with small pots. (Not a recommendation you understand).

It is possible that the financial adviser is not willing to look for an annuity because the amount of commission he will earn on it doesn't justify the amount of work that he will have to do. Might be worth complaining to your company about him.

However by far the best alternative is to leave the money invested until 6 April 2006. If the proposals go ahead, you will be able to draw the entire amount out as cash as it will be below the new £15k triviality limit.

Krisp_3

Thanks everyone. Pal - are these the new proposals related to the change from using age to decide how much can go in your pension pot to total value, instead?

Pal

Yes, kind of. The Inland Revenue is completely changing the rules on contributions and maximum benefits from pension schemes. The proposal is that a pension worth less than £15k can be taken entirely as cash, although the full rules are not yet out.

Unless he really needs the money urgently, I would suggest hanging on until April to see what develops. It might not work but it has to be worth waiting to find out.

dunstonh

He has been told by the FA that he needs to sort out an annuity for this scheme, but as the fund in his pot is under £5,000, he doesn't have enough to buy an annuity. On top of that, he can't have the money back either. J has no other personal schemes to add to this one. Is this correct?

Standard Life do £3000 and above. The existing provider should offer an in house annuity.

I understand that this scheme was started quite recently, hence the small amount in J's pot - which begs the question, why did the FA believe it was suitable for someone so close to retirement?

Free money from the employer? You also say that retirement is due to accident. Was he insured for that accident?

Also, if none of the rest of his colleagues understood the implications of a group personal pension scheme, then hasn't the FA misrepresented to them?

I've seen a number of group PPP presentations. Many don't turn up, most don't take much interest and rely on each other for information and do not ask the advisors setting the scheme up.

J has complained to the pension company but got no satisfaction. Now he is writing to the Ombudsman. But, does anyone know any other route to take?

Was it a tied company? if so, the insurance company is responsible for the complaint. If it was an IFA, you need to complain with the IFA. The ombudsman will not deal with it if you havent followed the correct process.

Also, what is the grounds for the complaint? Are the employers complaining? After all, it is the scheme that they set up with the advisor.

It is possible that the financial adviser is not willing to look for an annuity because the amount of commission he will earn on it doesn't justify the amount of work that he will have to do. Might be worth complaining to your company about him.

That is likely to be the case. However, I cannot see what grounds a complaint would have. An advisor can refuse to do a transaction if he wishes. Or he may set a minimum fee which makes it inefficient (seen that a number of times with money purchase schemes). This still doesnt stop the in-house annuity being issued.

However by far the best alternative is to leave the money invested until 6 April 2006. If the proposals go ahead, you will be able to draw the entire amount out as cash as it will be below the new £15k triviality limit.

If the value of the pension is less than £2500 and is the only pension held and that would produce less than £260 p.a. then it can be taken as a lump sum now.

EdInvestor

Hi Pal

Pal wrote:

However by far the best alternative is to leave the money invested until 6 April 2006. If the proposals go ahead, you will be able to draw the entire amount out as cash as it will be below the new £15k triviality limit.

There's been a great deal of confusion over trivial pensions .Originally the Revenue was planning to allow this I believe, until it was pointed out that everyone and his brother would immediately bung in 15k minus whatever the Givernment would supply in the way of 40% tax relief, and then extract the whole lot in cash immediately.Talk about free money LOL

So they had to change it.The under 15k rule now only applies where the total of a person's entire pensions is lower than this.So it won't work in this case because the OP's father has other pensions.

Krisp_3

Thank you all for yor various advices. I've since spoken to J and pointed him in the direction of the Pensions Advisory Service. By the way, this is the only personal pension he has - the other ones are occupational schemes. I thought the new proposals only referred to personal schemes, not occupational ones? His fund total is just over £3000, which is a bit unfortunate for the current triviality rules.

Oh, and regarding the accident - he's due to get a lump sum soon - 2 and a half years later!

Thanks everyone, you've been great!

DavidLaGuardia

Unfortunately there are many new providers, particularly of stakeholder who do not offer in house annuities.
I would be interested to know howthe following would be dealt with:
An individual has a very small pension fund and they have other pensions already in payment (thus they can neither add the small fund to the pot nor qualify for a trivial payment)????????