Transfer of a section 32 pension

Majidlondon

Hi,

A friend of the family has a Section 32 scheme with Aviva and wishes to take as much as possible from the scheme as a lump some due to the fact that he has substantial savings and the income provided from the scheme will be minimal.

Aviva have advised him that as the GMP of the scheme (£59,153.50) is greater than the transfer value (£23,128.44) it is not possible to transfer the scheme and he is forced to take a small weekly income from the scheme. No lump some available at all. Via aviva or a transfer to another provider.

I have been told it's possible to wave your right to the Garuanteed Minimum Pension but have no idea how to go about doing this.

Can anybody help?

dunstonh

It is possible to transfer to a personal pension and give up the GMP. However, this comes with consequences. Depending on the period covered by the GMP, it could reduce indexation on the state pension. The provider (Aviva) would also have to include indexation if the pension is taken with them.

wishes to take as much as possible from the scheme as a lump some due to the fact that he has substantial savings and the income provided from the scheme will be minimal.

This does not seem likely to be a good idea. The family member is giving up an investment with a notional value of £59,1532.50 to take £23,128 (of which ££17,346 would be taxed at 20% or even possibly 40%).

Has the family member calculated the breakeven point on the income (i.e. when the amount of income paid out exceeds the £23,128 - and includes annual indexation). it may not be a large amount in monetary terms but there is a very strong probability that the keeping it is the financially better option.

agarnett

Is the Aviva S32 a With-Profits contract, and did the family member say yes to a bribe in 2009 which may have been some hundreds of pounds if the plan was With-Profits ?

If it is, and the family member was wise enough to decline the bribe at the time, then there may be significant hidden value not yet disclosed by Aviva which would be lost upon transfer.

With such a high GMP element, it would seem this might be quite an old S32, probably originally written as a Norwich Union policy.

There is as described in another thread a danger that the rug might be pulled from under the GMP value by Aviva nearer retirement after liaison with HMRC about what the family members' actual entitlement to GMP via this particular policy might actually be. The entitlement may originally have been fudged or estimated or "unconfirmed" as it says in my Aviva policy.

These are not reasons for taking the money and running, just adverse elements which could befall the family member if they do not have sufficient background information.

I am not a financial advisor. I am just long suffering of the ills of the industry!

Majidlondon

Thanks for your speedy reply.

The yearly income is just a shade under £2900

Where the dispute lies is that he is adamant he would rather take a lump some, even if it were only in the region of 20k however aviva are stating that they will not transfer.

Extract from Aviva's letter: the actual cost of securing the GMP is greater than the transfer value. It is therefore not possible to transfer the benefits of the plan to an Apropriate Personal Pension (APP) or a Contracted Out Money Purchase Scheme (COMP).

Are you saying that despite this letter he still in fact has a right to transfer the scheme?

agarnett

Sorry, misread your first post, and judged from his post, dunstonh may know that Aviva's refusal to transfer may in fact be worked around (I don't know whether it can or not, but if dunstonh says it can, he won't have said it lightly!).

dunstonh

Where the dispute lies is that he is adamant he would rather take a lump some, even if it were only in the region of 20k however aviva are stating that they will not transfer.

They wont transfer it as they will need an intermediary to do it.

The yearly income is just a shade under £2900

And, subject to years of the GMP, that will be indexed. So, the breakeven point is going to be very short. This points to it being a bad decision by the family member.

Are you saying that despite this letter he still in fact has a right to transfer the scheme?

Yes it can be done just not using Aviva to do it (at least not without an adviser). It is going to be an internal rule as a section 32 buy out bond transfer is treated as an occupational pension transfer (unless its an open market option/IVPPP annuity purchase). This is to protect Aviva from the liability of complaint and redress when the family member realises that they shouldnt have done it. It is also to protect the individual from making a mistake without realising it.

xylophone

It would seem that he transferred out of an occupational scheme to the S32 with Aviva.

See http://m.financialadvice.net/s32_buy_out_plan/zone/1288

When he left the scheme, his employer would have provided Aviva with details of his pre 88 GMP, his post 88 GMP and the excess (if any).

The GMP must be revalued in deferment - it is likely that Aviva chose Fixed Rate but this can be checked with them.

http://www.barnett-waddingham.co.uk/comment-insight/blog/2014/08/18/what-is-a-gmp/

Aviva have an obligation to pay him at least his revalued GMP at GMP age.

They have no obligation to index link the pre 88 GMP once in payment but may have to index the post 88 GMP up to 3% CPI.

With regard to the indexation of pre 97 Additional State pension (I am assuming that he is just about to reach age 65 which is male GMP age and (for him) State Pension age), if the Fixed Rate method of revaluation was chosen, it is likely that his COD (see his state pension statement) is much higher than the notional pre97 AP, so that it would be a number of years before he saw any increase on pre 88 GMP or anything above 3% on post 88 GMP.

With regard to transferring out of a S32, by law, as another poster was advised," a transfer can only take place if the company`s actuaries can certify that the transfer value available is greater than the amount needed,on a prescribed basis,to provide the Guaranteed Minimum Pension liability held under your plan.This amount is known as the cash equivalent transfer value (CETV )".

See https://forums.moneysavingexpert.com/discussion/comment/66537854#Comment_66537854 post 14 and 18.

However, all the above did pre date pension freedom.

It is unclear to me whether the new legislation will make any difference to S32 policies- he might check this with Aviva/ the Pensions Advisory Service?

http://www.pensionsadvisoryservice.org.uk/

Whatever happens, the advice of an IFA qualified in Pensions transfers might well be required.

http://www.pensionsandannuities.co.uk/GMPInsurers.htm might be worth a look?

agarnett

xylophone wrote: »

When he left the scheme, his employer would have provided Aviva with details of his pre 88 GMP, his post 88 GMP and the excess (if any).

Isn't this the bit that commonly got neglected by employers in their haste to complete wind-ups?

If all the family member's contracted out GMP entitlements to the date of the wind up had been built up whilst at the one employer - the one winding up the scheme - then fair enough, but otherwise isn't this the part which the employer is likely to have neglected to pice together and liaise with individual employees for information on previous pensions and employments, for example, and ehich the likes of Aviva might have agreed to absorb and sort out later (to the customers's detriment) ... much later as in the other thread I linked to ?