What is it and what can I do with it ???

xylophone

Maybe the Aviva rep can help you to clarify your pension benefits?

https://forums.moneysavingexpert.com/discussion/5251067

post 2

thebullsback

I think a lot of people forget that aged 65 the end is nearer than the beginning .I may be wrong but the way I see it I have a pot of £17000 and a yearly pension of £700 I will be 90 by the time I get my own money out.Nice little earner this personal pension lark I think .

agarnett

Yes, on the face of it, OP, you look to be more right than anyone so far, mathematically speaking! I would however echo xylophone's concern that the £17,237 and £7,586 don't quite seem to marry with the annual pension figures you have quoted. So that means that no matter what, you'd be best advised to pin all numbers (and hidden rights in the contract) down accurately before you kick this thing into touch.

Pincher wrote: »

thebullsback wrote:

Payable monthly from 1 March 2024 and for at least 5 year and continuing for the rest of your life.
Your Pension other than your GMP of £351.04 will increase by 5.00% compound and your GMP of £ 342.68 will increase by 3.00% compound.
There is also a guaranteed spouses Pension on my death after normal retirement of £346.92 per year.

As it stands now what is the best way of getting as much money out of this pot as I can now as in my opinion the sums payable in 9years time are trivial .

Planning on dying before 70, are you?

Actually, if those Aviva supplied figures are already revalued correctly to age 65 on 1-March-2024, then together they appear to amount to just £8,300 paid out by 1-March-2029.

If you take the £17,237 now and could invest it at a fixed 2.5%pa net of tax for 35 years starting now, then it would I think* fund the same revalued pension amounts (at 3% and 5%pa) starting in 9 years and paying until age 90 as you suggest

I suspect Aviva wouldn't be keeping shareholders happy if they couldn't invest money and get a tax free return of at least double that, in which case I think* with that £17,257 they'd be able to fund your revaluing pension until you are 112 :rotfl: - but they'd be in trouble of course if your spouse then survived you

... but of course that doesn't take into account the extra cash they've already made, and will make when you have gone, out of whatever surplus cash they were given by your old pension scheme in the first place

Was that some educated guess you made, or have you already been checking the numbers through a spreadsheet ?

Edit:*Haven't treble-checked my spreadsheet, so firing a little from the hip here, but will check it if anyone thinks I've made any howlers

thebullsback

I have the origional documents from Aviva and I also have the options pack I sent for last week about taking my pension now .What is it that people need too know from these documents to help point me in the right direction for getting the most out of this fund one way or another ?
As i say had someone told me years ago my payments would amount to £17000 and they would give me about £800 a year back when I am 65 there is NO way I would have signed up .
Again thanks for all your replies

Pincher

thebullsback wrote: »

Nice little earner this personal pension lark I think .

That gives me an idea for a replacement annuity system.


It's structured like a drawdown pension pot.
You transfer money in from your maturing defined contribution pension to subscribe to units, so you retain all the tax refunds.
Let us say, a bundle contains 1000 annuity units, and each unit is worth £1,000. Once fully subscribed, i.e. one thousand units have been bought, it becomes a closed fund. The money would be invested in low risk assets, not excluding ETFs, so it stays invested.


Every unit would pay out say £100 a year to the subscriber/policy holder. If a subscriber dies, no more pay out is made to that policy, which is frozen. The £100 pay out would continue until all the money is gone, or all the subscribers are dead. So what happens when there is a leftover amount, say £50,000? This is exactly the same as you buying an annuity for yourself, get paid for five years, and then you die, so the company that sold you the annuity is up £50k on the deal.


Now , here is the clever bit. Initially, the subscribers own the bundle of annuity units collectively, but we can sell the bundle! In expectation of a leftover amount, a bank would be willing to buy the bundle, later on, another bank will buy it, because it is worth something. If the bundle is full of ill subscribers who die early, the buyer makes a killing. On the other hand, if the money runs out before all the subscriber dies, the buyer gets zilch. The good news is, the first sale adds to the money pot in the bundle. So, the subscription was £1million = £1,000 x 1000 units. We sell the bundle for £50k, which is added to the pot, so there is £1,050,000 in the fund.


In the traditional set up, the leftover amount would be profit for the annuity provider. In fact, they obviously leave a good safety margin (in their favour), to make sure they don't lose out. In this setup, they have to pay for the opportunity to get the leftover amount.


I would expect the value of a bundle can go up or down over the years. If lots of subscribers die early on, there is bound to be some leftover money, so banks will bid high for it. Traders can make money on the volatility. No need to wait for the last subscriber to die.

agarnett

So far OP, you have the recent letter offering a transfer value of £17,237, plus the original documentation for the arrangement which mentions the total pension amount at age 65.

The real questions as Linton and others have queried is

• What is the date of commencement of the original Aviva arrangement?
• Are the pension figures in the original documentation the actual entitlements as at the date the Final Salary scheme was wound up i.e. "the leaving date", or are they the same entitlement already revalued to the retirement date at age 65?

My little spreadsheet exercise, and your own thoughts so far are assuming the latter is the case, i.e the worst case.

We don't know when your final salary scheme for this one was actually wound up, but if for example it was actually wound up (say) 15 years ago in the year 2000, and those pension numbers in the original docs were what would have been your pension had you been 65 then and it had started right away, then you will have something a bit more valuable than you have believed up to this point!

If I have chosen about right (about a wind up in year 2000) and if the revaluations of GMP and the non-GMP are fixed at 3%pa and 5%pa as told, and have to be applied to the £351.04pa and £342.68pa respectively for the last 15 years and the next 9 to age 65 also, then your revalued pension at age 65 would start at something like £735pa GMP and £1,160pa non-GMP i.e. around £1,895 pa.

Actually, those sorts of numbers might then begin to make more sense of that £17,237 transfer value and the £7,586 GMP proportion of the transfer value i.e. they seem to be offering about 10x the annual pension you'd be giving up. That's generally not currently thought of as having the makings of a good deal ... I think the received wisdom is that to give up something like that, the cash ought to be nearer 20x the future pension you are waving goodbye to. We hear sometimes that some lucky punters have even managed to get offered as much as 30x at the moment from their final salary pension schemes if the schemes are still up and running, healthy, with proud employers.

So, in summary, the most important thing you now need to pin down is what is the actual revalued pension going to start at in 9 years - is it £700 a year or £1,900 as I have just postulated?

In the process, you need to be very sure that those revaluation rates (the 3% and 5%) are the actual revaluation rates (because normally as has been said, they are not the whole story). Those rates are perhaps capped increase rates, and not necessarily actual rates which may have been increased with RPI or CPI, and also establish whether the increase rates are the same after the pension starts being paid or whether a different formula then applies.

Simply put, Aviva have recently given you a firm written transfer value if you walk, but have they given you a firm updated written statement of retirement benefits at age 65 if you stay put?

agarnett

Pincher wrote: »

That gives me an idea for a replacement annuity system.

Er ... Pincher, are you sure you weren't around in a previous life ? Maybe as an FA in the 17th, 18th or 19th Centuries with a little bit of a French connection too ?

thebullsback

Original Norwich Union Commencement date 7 March 1999.
Benefits on Retirement if you take your benefits at normal retirement date ( I am 56 now)
I have found the original Documentation from the then Norwich union.
Normal Retirement age 65 (5/2/2024)
Benefits on Retirement at normal age.
£693.72 a year .This includes Pension other than your guaranteed minimum Pension of £351.04 a year .Your guaranteed minimum Pension of £342.68 a year which was earned after 5April 1988.
Payable monthly from 1 March 2024 and for at least 5 year and continuing for the rest of your life.
Your Pension other than your GMP of £351.04 will increase by 5.00% compound and your GMP of £ 342.68 will increase by 3.00% compound.
There is also a guaranteed spouses Pension on my death after normal retirement of £346.92 per year.

I wrote to Aviva who now run the Policy at the beginning of April this year to ask what I could do with this fund if I wanted to "Retire" now and received this back...
This is a replacement policy from a terminated Defined Benefit Occupational Pension Scheme.The benefits were bought out of the scheme fund when the scheme wound up .Therefore there is no fund value and no annuity rates apply. The defined benefits are fully secured with Aviva on a non-profit basis and are not held within any unitized funds.
Therefore you cannot choose or switch funds and there are no charges that apply.
The current transfer figure is £17,237.37 of which £7,586.33 is the value of post-1988GMP.We cannot guarantee these values ,they are for illustration purposes only.
There was also these options open to me if Retiring now - Option one Yearly Pension of £113.64
Option two- Cash lump sum of £2153.48 + yearly pension of £65.28
Option three- cash sum now £2153.48 + £4075.22 to buy income from another insurance company .
Option four - No lump sum + £6228.70 to buy income from another insurance company .
Additional bit of info on last page says -The open market option value of your GMP is -Basic open market option £10322.77
Total open market option £10332.77.
What this all means I do not have a clue .Help

Pincher

agarnett wrote: »

Er ... Pincher, are you sure you weren't around in a previous life ? Maybe as an FA in the 17th, 18th or 19th Centuries with a little bit of a French connection too ?

Yes, Tontine plus.

Don't you think incorporating draw down an innovation?

It does stray a little close to CDO (Collateralised Debt Obligation) trading. The health profiles of the subscribers could cause serious problems ultimately.

agarnett

OP wrote:

I wrote to Aviva who now run the Policy at the beginning of April this year to ask what I could do with this fund if I wanted to "Retire" now and received this back...

Yes, looks very much like the inadequate responses they are notorious for sending out.

You have to be an insider to know what questions to ask in order to pin them down.

You might be able to pin them down in a telephone call on Monday if you stick to the one main question you need answering right now which is something like this:

I have an original 1999 document confirming the main retirement benefit I can expect at age 65 is a pension of £693.72 a year revalued at 3% GMP / 5% other. I have been advised that in the 25 years from 1999 to the original scheme retirement date in 2024, the effect of revaluation of £693.72 at those particular fixed rates would yield a new total pension at age 65 of around £2,000 per year. If the revaluation does not work that way please confirm how it does actually work. Can you therefore confirm the revalued pension benefits I can expect at age 65 if I allow the contract to run its original intended course?

They'll probably tell you that they need to refer it to their actuarial department and that therefore you must wait up to three weeks.

You in turn might immediately hit them back by saying

Why do I have to wait 3 more weeks for something you should have given me in April so that I could make a proper comparison when you offered me an early retirement quotation? Do you treat all your customers as expert actuaries or mind-readers?

You can also ask them to send response letters by secure email to you although they often take a day or two so snail mail may be almost as fast.

Edit: I just had an idea which might help you decide whether the £693.72pa is a 1999 number which needs revaluing by 25 years to retirement. Basically, this Norwich Union/Aviva thing has replaced your original final salary pension - or at least your brief time with one such during your career to date. Private sector final salary pensions were commonly written on a maximum 40/60ths basis i.e. the most pension you could earn in a maximum of 40 years service was 40/60ths of your final salary. Sometimes they were 80ths with a maximum service of 40 years (so max 1/2 final salary as pension). Better ones were 30ths with as few as 20 years to maximum 2/3 final salary entitlement.

Let's stick with the more common maximum 40/60ths basis

If you know that yours was on a 60ths basis and you know
how many actual years' service you had in that particular scheme and
roughly what annual salary you were on when you left it,
you can work out the ballpark pension entitlement in 1999.

For example, if you had 10 years in that particular scheme (I read in another of your posts that after privatisation, you had to give up a previous scheme in 1989 and start a new one) then your unrevalued pension entitlement from that one scheme might be 10/[STRIKE]40ths[/STRIKE] 60ths i.e a [STRIKE]quarter[/STRIKE] sixth of your 1999 salary.

If that were so, then £693.72 x [STRIKE]40[/STRIKE] 60 / 10 would be in the right ballpark for your annual salary in 1999 i.e. about [STRIKE]£2,775[/STRIKE] £4,162 per annum. That looks less than minimum wage in 1999 which was £3.60 per hour. 40hrs x £3.60 x 52 weeks = £7,500 per annum.

So your actual service in that particular scheme was probably less than a handful of years? Can you remember ?

Let's say it was 3 years and do the trial and error sum again:

£693.72 * [STRIKE]40[/STRIKE] 60 / 3 = [STRIKE]£9,250[/STRIKE] £13,874 per annum ... is that closer to what it was in 1999 ?

You get the picture now, I am sure.

I am no expert, and it would be good if an expert or two now offered a further view on the numbers again, but I would say that your £693.72 looks like a 1999 entitlement that needs to be revalued using the 3% / 5% and that would indeed I think mean that your actual pension at age 65 which you were close to giving up may actually be nearer £2,000 per annum, guaranteed 5 years minimum and increasing, and with spouse's benefits.