Any way to avoid going to an IFA?

mania112

is this a Prudential policy?

dunstonh

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).

That makes more sense. Guaranteed minimum pension (GMP) is actually something that exists and is totally different. So, it does appear to be a mix up in terminology.

Many guaranteed annuity rates are not expressed in percentage terms. In fact, most are not. Usually, we have to convert the figure back to show it in percentage terms. There are multiple types of guarantee. A percentage rate is just one of them. I have seen some plans have guaranteed minimum fund values and you get guaranteed basic annuity figures and other variations.

I have seen some old Pearl plans with Guaranteed minimum fund values which are only paid out if you wait to ages between 60-75 (the guarantee jumps on 5 year intervals). If you transfer out, you get the transfer value of the underlying fund and not the guaranteed value. However, they are not linked to gilts (although the with profits fund does have gilts within it). Pru have a guaranteed basic annuity on some old plans.

Who is the provider?
Where does gilts come into it? (are you invested in a gilt fund)

Barry_Man

Maybe a matter of terminology again, but I have a letter from the provider categorically stating that these plans do not contain guaranteed annuity rates.

Thanks for the input. I'll leave it at that for now.

dunstonh

Maybe a matter of terminology again, but I have a letter from the provider categorically stating that these plans do not contain guaranteed annuity rates.

But does it contain a guarantee that results in an annuity that could be higher than that obtained on the open market option?

Guaranteed annuity rate is one thing. Guaranteed basic annuity is another. Guaranteed minimum fund value is another. However, all three can lead to higher annuities and if those annuities are turned into percentages then that is your annuity rate. So, the actual rate may not be guaranteed.

This is why advisers, when writing to the insurance companies, dont just ask if there was a guaranteed annuity rate. They ask if there are any forms of guarantee and what they are. Indeed, firms that have only asked if there were GARs have come unstuck later when it was found out that guarantees did actually exist but were not called a guaranteed annuity rate.

Thanks for the input. I'll leave it at that for now.

Shame. However, the good thing is that it does appear that the consumer protection is working in this case. it would have been nice to know where you thought gilts come into the transfer value though.

Barry_Man

Gilts:

Firstly, I have to say that I have worked on the basis that annuity rates are predicated on long term(ish) gilt yields. If that is not the case, then what follows is irrelevant (and there is a widely held misconception - for example, see http://www.sharingpensions.co.uk/gilt-yields-chart-latest.htm).

As I've already explained, the transfer value (TV) jumped (by about 2.5 times) when I reached age 60 from the underlying fund value. At any time, the new TV is roughly what would be required to purchase the equivalent of the g'teed annuity on the open market at that time.

The TV changes quite frequently. I can monitor it via online access. I can see that it peaked around February 2015 (when 15 year gilt yields were at their lowest) and has subsequently drifted downwards as gilt yields have risen (but not significantly - yet).

Whilst the provider will not divulge their internal calculations, from the above it seems highly likely that gilt yields are the driver behind the changes in the TV.

dunstonh

Firstly, I have to say that I have worked on the basis that annuity rates are predicated on long term(ish) gilt yields.

yes. However, your posts indicated that you were linking gilts to the transfer value.

Whilst the provider will not divulge their internal calculations, from the above it seems highly likely that gilt yields are the driver behind the changes in the TV.

Only if the underlying investments are in gilts.

Maybe the transfer value jumped as the transfer penalty reduces as you get closer to the scheme retirement age.

The TV changes quite frequently. I can monitor it via online access. I can see that it peaked around February 2015 (when 15 year gilt yields were at their lowest) and has subsequently drifted downwards as gilt yields have risen (but not significantly - yet).

Markets are lower than they were in February. I wouldnt make assumptions on gilts being the reason. The underlying assets of the fund is the reason. That may or may not include gilts (probably some of it does).

Barry_Man

From a letter from the provider in relation to a query raised:

"This plan was designed to provide a guaranteed pension payable in a standard way to which bonuses were added, also in the form of a pension. In order to provide a projection of alternative benefits it is necessary to convert this pension into a lump sum. Since it costs more to buy each £1 per annum of pension at low interest rates than it does at high interest rates......."

dunstonh

That is correct for the purchase of the annuity but it has no impact on the fund value (directly).

your fund value is affected by the underlying assets value. Some of it will be bonds, some gilts, some property and some equities.

The annuity rate is based on gilts and mortality gain (cross subsidy from those that die early).

Barry_Man

Been a while, I know, but urgent family matters to deal with. So let's have another try.

If I login to the provider's online service, I can request the "Policy Values" and get:

- Current Policy Value: Not applicable

- Current Policy Death Value: £999999.99

- Current Policy Transfer Value: £999999.99

Can also request Latest Fund Values (for the policy) which results in: "The information you have requested does not apply to this policy type."

Seems pretty unambiguous to me.