Phoenix life

thebullsback

My wife is 60 and works for the NHS .She has decided to retire from work and then return same job doing 4 days a week in stead of five as per NHS Pension rules.
Along with her NHS pension she has a Private Pension Fund with Phoenix Life that amounts to £20,380.
She contacted Phoenix and agreed to take her Pension Pot in the form of Lump sum and reduced Annuity.
However after further thought and when the Phoenix pack arrived she decided instead to go for the "Cash in Lump Sum " option IE 25% tax free the rest taxed cash and dully filled in the appropriate form and returned it .
Letter back from Phoenix states .
As we have not discussed this option with you we cannot pay the claim at this time you must call our contact center to discuss this and other options .
Also with the UFPLS option you need to have an IFA fill in the form for you.
This is because your plan includes a guaranteed annuity rate where the value of the safeguarded benefits is worth more than £30000.We believe it would require you to invest more than £30000 on the open market to secure the guaranteed benefits this arrangement provides .
Can they do this??

dunstonh

his is because your plan includes a guaranteed annuity rate where the value of the safeguarded benefits is worth more than £30000.We believe it would require you to invest more than £30000 on the open market to secure the guaranteed benefits this arrangement provides .
Can they do this??

If the plan value is over £30,000 (not transfer value) then they can. If its under then its a good idea as some Phoenix GAR rates are in double digits and taking the money as a lump sum could be a silly thing to do. However, under £30k, they cant force it. Over 30k, they can.

bigadaj

OP - you need to find out what the guaranteed rates are.

There would be little point taking money out, paying tax on it, and then getting a fraction of what the pension would be paying out as part of the guaranteed annuity rate.

sandsy

Yes, it's a legal requirement that if you propose giving up a guaranteed income worth more than £30k, you have to take compulsory professional financial advice so that you understand the implications of your actions.

AnotherJoe

sandsy wrote: »

Yes, it's a legal requirement that if you propose giving up a guaranteed income worth more than £30k, you have to take compulsory professional financial advice so that you understand the implications of your actions.

Don't you mean if the lump sum is more than 30k and there are guaranteed payments from it rather than, an income of 30k a year ? For an income of 30k a year you'd be looking at a lump sum well north of half a million.

Ps I believe they multiply the guaranteed income by 20 to arrive at a lump sum value for the purposes of knowing if it meets the 30k threshold but I'm not certain about that.

sandsy

AnotherJoe wrote: »

Don't you mean if the lump sum is more than 30k and there are guaranteed payments from it rather than, an income of 30k a year ? For an income of 30k a year you'd be looking at a lump sum well north of half a million.

Ps I believe they multiply the guaranteed income by 20 to arrive at a lump sum value for the purposes of knowing if it meets the 30k threshold but I'm not certain about that.

The advice requirement kicks in if the (present) value of the income exceeds £30k. This can mean that it hits funds as small as £10-£15k. For example, someone with a fund of £15k with a 10% GAR would have a guaranteed income of £1500pa which could easily be worth more than £30k (to buy on the open market), depending on the age of the annuitant and the shape of the annuity.

thebullsback

The original option my wife went for was this.
Tax free lump sum £1993.46 with Annuity per year of £468.84 (payable quarterly in advance fixed for life) This option uses the GMAR
Any thoughts on this V full cash in? For discussion purposes only.

dunstonh

Sandsy is correctly referring to what could be called the equivalent value. Here is a snippet from the Jan 2016 DWP guidance which clarified this issue. it is probable that many people that took benefits in 2015 did only look at the transfer value as this bulletin was issued to clear things up.

The valuation process for safeguarded benefits Currently the law sets out a single process for valuing safeguarded benefits, which applies both to traditional salary related pensions and to all other safeguarded benefits (including those with a guaranteed annuity rate), for determining whether or not their value exceeds the £30,000 threshold above which advice is required. For this purpose all safeguarded benefits (including those with a guaranteed annuity rate) are regarded as “salary related benefits” (defined in the Regulations as any benefits which are not money purchase benefits). As safeguarded benefits are not cash balance benefits, the relevant method is that set out in regulations 7A, 7B and 7E of the Occupational Pension Schemes (Transfer Values) Regulations 1996.

So, its the equivalent value of the benefits that matter. Not the cash transfer value of the pension. And in true Sunday morning posting style: here is the copy and past for those three bits of legislation.

Manner of calculation of initial cash equivalents for salary related benefits
7A.
—(1) For salary related benefits, the initial cash equivalent is to be calculated—
(a) on an actuarial basis; and
(b) in accordance with paragraph (2) and regulation 7B.
(2) The initial cash equivalent is the amount at the guarantee date which is required to
make provision within the scheme for a member’s accrued benefits, options and
discretionary benefits.
(3) For the purposes of paragraph (2), the trustees must determine the extent—
(a) of any options the member has which would increase the value of his benefits
under the scheme;
(b) of any adjustments they decide to make to reflect the proportion of members likely
to exercise those options; and
(c) to which any discretionary benefits should be taken into account, having regard to
any established custom for awarding them and any requirement for consent before
they are awarded.

Initial cash equivalents for salary related benefits: assumptions
7B.
—(1) The trustees must use the assumptions determined under this regulation in
calculating the initial cash equivalent for salary related benefits.
(2) Having taken the advice of the actuary, the trustees must determine the economic,
financial and demographic assumptions.
(3) In determining the demographic assumptions, the trustees must have regard to—
(a) the main characteristics of the members of the scheme; or
(b) where the members of the scheme do not form a large enough group to allow
demographic assumptions to be made, the characteristics of a wider population
sharing similar characteristics to the members.
(4) The trustees must have regard to the scheme
’s investment strategy when deciding
what assumptions will be included in calculating the discount rates in respect of the
member.
(5) The trustees must determine the assumptions under this regulation with the aim that,
taken as a whole, they should lead to the best estimate of the initial cash equivalent.

Manner of calculation of initial cash equivalents for money purchase benefits
7C.
—(1) For money purchase benefits, the initial cash equivalent is to be calculated in
accordance with this regulation.
(2) The initial cash equivalent is the realisable value of any benefits to which the member
is entitled.
(3) The trustees must calculate that realisable value—
(a) in accordance with the scheme rules; and
(b) in a manner which is—
(i) approved by the trustees; and
(ii) consistent with Chapter IV of Part IV of the 1993 Act.
(4) The realisable value must include any increases to the benefits resulting from a
payment of interest made in accordance with the scheme rules.

---

And there you have it. It is the equivalent value to making up the benefits that matters. Not the transfer value.

dunstonh

thebullsback wrote: »

The original option my wife went for was this.
Tax free lump sum £1993.46 with Annuity per year of £468.84 (payable quarterly in advance fixed for life) This option uses the GMAR
Any thoughts on this V full cash in? For discussion purposes only.

If that is correct, it doesnt seem to be that valuable. The annuity would take 39 years to recover the fund value. Most guaranteed annuity rates recover much quicker than that. Open market rates tend to recover around 22 years.

I have a Phoenix on on the go at the moment and that has a GAR of 8.2% (level, single life) at age 60 (9.6% at 65). The annuity rate on your example is 2.55%. Whilst it is possible it could be that low, it is unlikely. It would be enough for me to take another look to check my figures as I would be wondering why its so low. Is there indexation in there for example? Or is the payment per quarter rather than per year?

thebullsback

From Phoenix Life
Basic Plan Details
Assured Pension Date -10 Oct. 2015
Estimated Value of Pension Fund-£29,383.13
Plan Type- Defined Contribution (Money Purchase)

Guarantee Annuity Rate and Benefit Available-Here it says to refer to notes below which just states the following "The plan contains a Range of GMAr which apply at retirement for Normal Retirement date
refer to Policy Document

thebullsback

Tax free lump sum £1993.46 with Annuity per year of £468.84 (payable quarterly in advance fixed for life) This option uses the GMAR

The Annuity is £468.84 per year payed Quarterly in advance -this annuity will provide a fixed pension for the rest of your life.
This option uses the GMAr for some but not all of your benefits as defined in your policy.