Any way to avoid going to an IFA?

Barry_Man

I have a section 226 Retirement Annuity Contract which has a guaranteed minimum pension. I am now looking to utilise this plan.

I've been investigating my options and concluded, given the currently raised transfer value [now over £100k due to gilt yields being what they are] that what is best for me (bearing in mind my extensive other pension plans, ISAs and other investments) is to transfer into a SIPP and utilise the whole pot in a way that fits in with my income and tax situation (both now and in the coming years) and securely invest the funds.

However, my current provider is insistent that I am now legally required to go to an IFA for "advice" for such a transfer. Not only is this costly, but will massively draw out the whole transfer process with the attendant risk that the transfer value will decrease (possibly significantly) if gilt yields rise (and thereby potentially call in to question the whole basis for transferring rather than taking the guaranteed pension).

In the circumstances is there any way to circumvent (or even "minimise") the use of an IFA way as I do not require any advice from an IFA?

Also, if one ends up going to an IFA and the IFA advises against what I am planning, will the fact that the IFA advises against it block me from doing what I want to anyhow (I've seen other posts on here that suggest that might be the case)?

dunstonh

However, my current provider is insistent that I am now legally required to go to an IFA for "advice" for such a transfer.

It is unlikely a S2226 RAC has GMP. its more likely it has a GAR and that is the issue. Legislation requires advice as its over 30k with safeguarded benefits.

Not only is this costly, but will massively draw out the whole transfer process with the attendant risk that the transfer value will decrease (possibly significantly) if gilt yields rise (and thereby potentially call in to question the whole basis for transferring rather than taking the guaranteed pension).

Why would the gilt yields have an impact on a money purchase scheme? Do you happen to be solely invested in a gilt fund with the S226?

In the circumstances is there any way to circumvent (or even "minimise") the use of an IFA way as I do not require any advice from an IFA?

No.

Also, if one ends up going to an IFA and the IFA advises against what I am planning, will the fact that the IFA advises against it block me from doing what I want to anyhow (I've seen other posts on here that suggest that might be the case)?

Many advisers will not transact insistent client transactions (where the advice is to keep it). Some will. Some providers only need sight that you have taken advice. Not what the advice was.

What is the guaranteed annuity rate on this pension?

warwicktiger

There are two important points here - are you worried about gilt rates falling? That would further reduce annuity rates on the open market, but not a lot as they cannot fall a lot!.

Secondly, as Dunstonh said, it will be Guaranteed annuity rates, not Guaranteed Minimum Pension, these annuity rates are unbelieveably better than anything on offer today, why would you want to lose them?

payless

Sounds like an improved transfer value is currently available given how low gilts yields are - effectively an annuity in reverse

As yields rise , the value of the pot value falls

Barry_Man

Thanks for the replies.

It is GMP, not GAR. The specific minimum pension (for starting to draw a pension on standard contractual terms at each anniversary from 60 to 75) is guaranteed in £. The GMP is well in excess of what the underlying fund value (which was the transfer value at the time) would have bought prior to my 60th.

However, since my 60th the transfer value is now calculated (by some means) by working back from the GMP and coming up with a value that would be roughly required to purchase an equivalent annuity on the open market. Consequently as gilt yields fall (and prices rise) the transfer value increases. Conversely as gilt yields rise (and prices fall) the transfer value decreases. In practice the provider adjusts the transfer value periodically (e.g. once per month).

So, the transfer value is pretty high right now in the overall scheme of things and I wish to take advantage of that.

dunstonh

It is GMP, not GAR. The specific minimum pension (for starting to draw a pension on standard contractual terms at each anniversary from 60 to 75) is guaranteed in £.

That describes a GAR. Not GMP. I have never seen a S226 with GMP and I am not sure it is technically possible.

You are flitting back and forth with a 60ths scheme and the 226 so its a bit hard to follow.

TH1878

Barry_Man wrote: »

Thanks for the replies.

It is GMP, not GAR. The specific minimum pension (for starting to draw a pension on standard contractual terms at each anniversary from 60 to 75) is guaranteed in £. The GMP is well in excess of what the underlying fund value (which was the transfer value at the time) would have bought prior to my 60th.

However, since my 60th the transfer value is now calculated (by some means) by working back from the GMP and coming up with a value that would be roughly required to purchase an equivalent annuity on the open market. Consequently as gilt yields fall (and prices rise) the transfer value increases. Conversely as gilt yields rise (and prices fall) the transfer value decreases. In practice the provider adjusts the transfer value periodically (e.g. once per month).

So, the transfer value is pretty high right now in the overall scheme of things and I wish to take advantage of that.

Before my time but if it's really a S226 RAC, it isn't possible to have GMP because these contracts were only available to self employed who couldn't contract out of SERPS (hence no GMP).

Your paragraph regarding the transfer value may be correct but I've never seen another S226 plan like that so I think you're misunderstanding it.

Are you sure it's not a Section 32 plan, rather than a S226?

xylophone

60ths scheme

I don't think he is talking about a 60ths Scheme - I read it as his 60th birthday.

This particular S226 does not appear to have a guaranteed annuity rate but a guaranteed annuity- see

https://forums.moneysavingexpert.com/discussion/comment/66551542#Comment_66551542

It would seem that on any birthday between the policy holder's 60th and 75th, he can take a pension on standard contractual terms that is a guaranteed amount.

The transfer value of this pension is calculated as in 5 above.

However, regardless of any of this, there are guaranteed benefits and the value is in excess of £30,000 so the OP has no option but to take advice?

https://www.fca.org.uk/news/policy-statements/ps1512-proposed-changes-to-our-pension-transfer-rules-feedback-on-cp157-and-final-rules

https://www.unbiased.co.uk/

TH1878

xylophone wrote: »

I don't think he is talking about a 60ths Scheme - I read it as his 60th birthday.

This particular S226 does not appear to have a guaranteed annuity rate but a guaranteed annuity- see

https://forums.moneysavingexpert.com/discussion/comment/66551542#Comment_66551542

It would seem that on any birthday between the policy holder's 60th and 75th, he can take a pension on standard contractual terms that is a guaranteed amount.

The transfer value of this pension is calculated as in 5 above.

However, regardless of any of this, there are guaranteed benefits and the value is in excess of £30,000 so the OP has no option but to take advice?

https://www.fca.org.uk/news/policy-statements/ps1512-proposed-changes-to-our-pension-transfer-rules-feedback-on-cp157-and-final-rules

https://www.unbiased.co.uk/

Right, makes more sense now. The reference to gilt yields with respect to the transfer is still unusual, but not impossible.

However, I think the OP has proved that he probably does need to see an IFA anyway - GMP is not the same as a guaranteed annuity.

Barry_Man

OK, maybe poor use of terminology on my part. The documentation describes it as "guaranteed yearly pension". The point being that it is the minimum annual pension amount is guaranteed. In theory it could (have been) more. But in practice, with all that has come to pass, that's not at all likely to happen. There is no guaranteed annuity rate (i.e. there is no guaranteed annuity percentage - it is the pension amount that is guaranteed).

And, as I say, the transfer amount, since age 60, rather than being based on the original underlying fund value is rather obviously calculated from what it would take to buy the guaranteed pension (for starting the pension at the current age) in the open market in prevailing market conditions (hence the reference to gilt yields).

And yes - 60th = 60th birthday.

Also, it is S226. It was never part of a company scheme. I was self-employed at the time.

xylophone

See FCA link in post 8 above - it seems to me that if you want to proceed you'll be required to take advice.