S.32 Plan Options

Tufty_Duck

My husband has a 'Norwich Transfer Plan 32' dated May 1989. He reaches his 65th birthday in December. He already has pensions in payment well in excess of £20,000 and the income this policy adds is not material and would be taxed at 40%. Ideally he would like to be able to draw down the full pension fund over 2 tax years (to deal with income tax implications) but because the plan has a GMP element I am not sure whether this will be possible or whether there are any alternatives. Can he use flexible drawdown and if he cannot are there any alternatives please? I intend to use a IFA but wanted to understand more about the options first.

dunstonh

Ideally he would like to be able to draw down the full pension fund over 2 tax years (to deal with income tax implications) but because the plan has a GMP element I am not sure whether this will be possible or whether there are any alternatives.

Unless he has over £20,000 of guaranteed income that is not possible. The section 32 wouldnt allow that method anyway. It would require a transfer and that would see the GMP lost. The transfer value may not reflect the value of the income and the breakeven point would need to be calculated.

Can he use flexible drawdown and if he cannot are there any alternatives please?

If he qualifies and transfers the pension then yes.

xylophone

Unless he has over £20,000 of guaranteed income

OP has said

He already has pensions in payment well in excess of £20,000

Presumably he will also be drawing his state pension?

https://forums.moneysavingexpert.com/discussion/4130555 might be worth a look?

Tufty_Duck

Thank you very much to both of you. Yes his state pension will take him into the higher rate tax band. I will get a pension quote from Aviva before I do anything as I am aware that I will lose the guarantee if we transfer and the plan does include a widows pension. The transfer value is just over £80k and I think that it will take over 20 years of income to recoup this.
Do you think I would benefit from the services of an IFA in facilitating the transfer?

dunstonh

The transfer value is just over £80k and I think that it will take over 20 years of income to recoup this.

Depends. A section 32 may have protected tax free cash entitlement above 25% (as well as below). It can produce a guaranteed index pension for life. So, you have to consider the annual increases and not just the starting figure.

The GMP could be more valuable than the transfer value if there is a shortfall.

Do you think I would benefit from the services of an IFA in facilitating the transfer?

Depends on whether you know what to look out for or not.

Tufty_Duck

I have now received a quotation from Aviva re s32 pension. The open market option for the GMP element states that 'if this option is selected the provider must agree to provide the full guaranteed pension'.

Could anyone tell me please if this means that the fund can't be transferred to a SIPP with a view to using flexible drawdown? Is Aviva entitled to insist on the pension being provided even though it is not the preferred option?

xylophone

I suspect that the provider might well require an IFA sign off to transfer your S32 to a SIPP or any other type of personal pension?http://www.jacksonfrancis.com/docs/FSA_factsheet.pdf

http://www.hl.co.uk/pensions/sipp/transfer-to-the-vantage-sipp

I wonder whether an initial enquiry to the Pensions Helpdesk above might provide some indication - worth a try?

dunstonh

I have now received a quotation from Aviva re s32 pension. The open market option for the GMP element states that 'if this option is selected the provider must agree to provide the full guaranteed pension'.

If you use the OMO method then the new provider has to accept the GMP. If you use the IVPPP method (i.e. full fund transfer) then the GMP is lost on transfer.

Could anyone tell me please if this means that the fund can't be transferred to a SIPP with a view to using flexible drawdown?

No. You can still do it. You just cant use OMO.

Is Aviva entitled to insist on the pension being provided even though it is not the preferred option?

It is a legal requirement if you want the guarantees retained.

Tufty_Duck

Thank you both for the replies. I was not given the option of a 'full funds transfer'. Is that something I need to contact Aviva about? I presume that if I take that option I won't be able to take advantage of the enhanced tax free lump sum (around 33%) which is quoted with the OMO. I guess that's called not having your cake and eating it!

I have worked out all the options quoted and unless either my husband or I live to be 100, the flexible drawdown option is more advantageous taking income tax into consideration.

dunstonh

I was not given the option of a 'full funds transfer'. Is that something I need to contact Aviva about?

If you dont ask for it they wont supply it. Remember that when you DIY you have to ask the options. They won't offer them all.

I presume that if I take that option I won't be able to take advantage of the enhanced tax free lump sum (around 33%) which is quoted with the OMO.

Full fund transfer will lose transitional reliefs and guarantees.

I guess that's called not having your cake and eating it!

Correct.

I have worked out all the options quoted and unless either my husband or I live to be 100, the flexible drawdown option is more advantageous taking income tax into consideration.

Are you sure? Remember that GMP would involve an annual increase to either the pension annuity or the state pension depending on whether it is pre or post 1988 benefits. If transferred, those benefits would be lost.

kidmugsy

Tufty_Duck wrote: »

My husband ... reaches his 65th birthday in December. He already has pensions in payment well in excess of £20,000 and the income this policy adds is not material and would be taxed at 40%. ... Can he use flexible drawdown I intend to use a IFA but wanted to understand more about the options first.

(i) Be clear that if he starts flexible drawdown he can't make any pension contributions in the tax year of drawdown or subsequently. It doesn't sound as if this will matter much to you.
(Strictly, he could make them but with such penalties that it would make no sense.)

(ii) An alternative might be to leave the fund uncrystallised so that if he dies before age 75 you inherit it all tax-free. Or he might request that it go straight to your children or grandchildren free of inheritance tax too. You might like the IFA to explain the pros and cons to you.