g.a.r

thirdman

Back in 1985 I took out a sun alliance with profits pension policy, now phoenix. it has a G.A.R, do they still have to honour this? or should I seek the open market option?

Linton

thirdman wrote: »

Back in 1985 I took out a sun alliance with profits pension policy, now phoenix. it has a G.A.R, do they still have to honour this? or should I seek the open market option?

Old GARs still have to be honoured and so can be very valuable. Ones from 1985 are likely to give an annuity well in excess of what you could get now from the pension pot because they were based on lower life expectancies and higher expected returns. No-one at that time foresaw what would happen and so the insurance companies made some what proved to be unwise commitments.

The conditions for a GAR pension will be based on the scheme rules and so may be restricted in the options and when you take the annuity. Anything outside the scheme rules may well lose the GAR. If you transfer you will lose the GAR.

Suggest you try out an annuity calculator to compare against the projections in your annual statement which should include the GAR. I have used the Money Advice Service one.

thirdman

thanks for this advice, it has conditions but not sure what they are, as I have misplaced the original policy.

jamesd

The GAR is likely to be two or three times the current rate for a normal annuity so it'll be very important to find out the GAR terms and almost certainly best to use the GAR. GAR terms can include things like requirements to use the option on certain dates so best to check as soon as you can.

The open market option is very unlikely to beat a 1985 GAR for a standard annuity unless you are much older than the first age at which the GAR can apply. Something like aged 80 now with a GAR from age 65 might give you more just because of your age now.

If you have medical conditions that reduce your life expectancy an enhanced annuity could be purchased via the open market option. That might pay more than a GAR, depending on how much your life expectancy is reduced.

If your life expectancy is only a few years then it would probably be better to take the pension as a lump sum instead of buying an annuity. That might take a transfer out to another pension if they happen not to allow it within this policy. Taking all or any part of a pension pot as a lump sum is assuming that you do it after April 2015 when the rules change to allow that, or that it is below the small pots limit.

[Deleted User]

My partner has 1 of these pension plans and he also took it out with Royal Sun Alliance. They told him that the GAR they're currently paying out for a man age 65 is 10%. The T&C of the policy state that he will have to take an annuity at age 65, otherwise the GAR will not apply. However, since Phoenix took over the policies, the bonuses being added are very small - a few pounds per year. Of course, 10% of a low fund value is a very small pension amount.

DaveMcG

Some GARs have to be taken at the retirement date of the policy so as others have stated, check the terms. Also it is worth asking if the Open Market Option value takes into account the value of the GAR, one of my former employers did this.

jamesd

Is that 10% level or inflation-linked?

[Deleted User]

jamesd wrote: »

Is that 10% level or inflation-linked?

It's level with 5 years guarantee

kidmugsy

[quote=[Deleted User];67016867]My partner has 1 of these pension plans and he also took it out with Royal Sun Alliance. ... since Phoenix took over the policies, the bonuses being added are very small - a few pounds per year. Of course, 10% of a low fund value is a very small pension amount.[/QUOTE]

It's conceivable that they are paying small annual bonuses but that there will be the possibility of a large terminal bonus.

[Deleted User]

Yes they did say there could be a terminal bonus, but this is not guaranteed and paid at the company's discretion. As for a large terminal bonus, I think that's definetely not a possibility. Sorry - I don't think I'm being too pessimistic here!!

kidmugsy

[quote=[Deleted User];67019458]Yes they did say there could be a terminal bonus, but this is not guaranteed and paid at the company's discretion. As for a large terminal bonus, I think that's definetely not a possibility. Sorry - I don't think I'm being too pessimistic here!![/QUOTE]

Based on what? Phoenix has paid out whoppers on at least one of its funds.