SERPS Opt Back In - Poor Advice?

Flashgordon

I took out a with profits endowments contributory pension with Sun Alliance in 1988 and was advised by them to contract out of SERPS with the NIC's paid into a seperate Protected Pension Plan.
Nothing was made of it at the time but the small print of the policy contained a Guaranteed Annuity Rate (GAR) of 10.93%.
In 2001 Sun Alliance wrote to me urging me to contract back into the state scheme which I did. They made no mention of the GAR.
I now find that this plan, after those 11 years of contributions, will produce some 3 and a quarter times more annuity payments per week, as I turn 65 in 2016, than the contracted out reduction to my state pension due to the GAR written into the Sun Alliance scheme.
Was I poorly advised by Sun Alliance or did the change to S2P from SERPS in 2002 alter matters?

Goldiegirl

Somebody will be along soon who knows more about this than me, but I remember that, at some point, people over the age of about 45 were considered better off going back into SERPS. Indeed, my husband went back in - perhaps Sun Alliance just gave you the advice that was thought to be correct at the time.


BUT, GAR's shouldn't have been given up lightly

woolly_wombat

Flashgordon wrote: »

Nothing was made of it at the time but the small print of the policy contained a Guaranteed Annuity Rate (GAR) of 10.93%.
…..
Was I poorly advised by Sun Alliance or did the change to S2P from SERPS in 2002 alter matters?

I can't really comment other than to note that in July 2000 the House of Lords ruled that Equitable Life would have to meet its obligations to its GAR policyholders.

That must have been a wake up call to other pension cos who had offered GARs.

dunstonh

In 2001 Sun Alliance wrote to me urging me to contract back into the state scheme which I did. They made no mention of the GAR.

In 1997, Labour started to reduce the rebates from contracting out. So, the pivotal age to contract back in started to lower. A number of the sales force sold pensions decided to either contract everyone back in or make you aware of the choice.

Was I poorly advised by Sun Alliance or did the change to S2P from SERPS in 2002 alter matters?

They did not advise you. They offered a choice and perhaps reasoning but it would not have been advice.

When you raised this with your adviser, what advice did you get? Or did you just accept the default position from the R&SA?
How old were you in 2002?

jamesd

It is very likely that you are worse off from not staying contracted out but this answer depends on your age at the time and now as well as how many years you will be working or buying extra state pension years between now and your state pension age. Briefly, a person who was contracted out will have accrued lower state pension so they will continue to get more for extra years worked or bought until they reach the flat rate level. A person who didn't contract out would just start out closer to or above the flat rate level and would gain less or nothing for the extra years. In addition the person who contracted out will have whatever pension they accumulated from being contracted out.

However, that's knowing the future. Back in 2001 there was lots of guidance that a person was likely to be better contracted in based on their age at the time. Which will be why dunstonh asked about your age, to determine whether you received a letter based on that guidance.

If they simply wrote you a letter based on the common guidance what they did was simply use the best available guidance based on the information known at the time. While this probably made you worse off they couldn't know how the future would change the situation.

GunJack

Flashgordon wrote: »

I took out a with profits endowments contributory pension with Sun Alliance in 1988 and was advised by them to contract out of SERPS with the NIC's paid into a seperate Protected Pension Plan.
Nothing was made of it at the time but the small print of the policy contained a Guaranteed Annuity Rate (GAR) of 10.93%.
In 2001 Sun Alliance wrote to me urging me to contract back into the state scheme which I did. They made no mention of the GAR.
I now find that this plan, after those 11 years of contributions, will produce some 3 and a quarter times more annuity payments per week, as I turn 65 in 2016, than the contracted out reduction to my state pension due to the GAR written into the Sun Alliance scheme.
Was I poorly advised by Sun Alliance or did the change to S2P from SERPS in 2002 alter matters?

so I make the OP 50 in 2001 if they hit 65 this year if that helps...

dunstonh

LOL. I used to do logic puzzles and I missed that one!!

In which case, contracting back in was the right thing to do.

jamesd

And no significant flat rate gain available to make them a loser from the change either.

Flashgordon

Many thanks for the responses.

I am currently in the process of trying to get Phoenix Life to set out the options I have under both the contributory and contracted out plans which is equivalent to extracting teeth.They seem reluctant to detail how they arrived at the final pension pot figures, apply a terminal bonus to one and not the other and the one that is given the bonus they work out the annuities calculations without the bonus included! You write or ring them and responses take some 10 days to arrive and raise more questions then answers.

Going back through the years of paperwork I notice that at no time did Sun Alliance, Resolution or Phoenix ever mention the Guaranteed Annuity Rates that both policies had written into the original schedules indeed the occasional illustration of likely annuities were calculated @ the lower rates then current.

dunstonh

I am currently in the process of trying to get Phoenix Life to set out the options I have under both the contributory and contracted out plans which is equivalent to extracting teeth.

Phoenix don't offer all the options. Only a limited number. So, remember that.

They seem reluctant to detail how they arrived at the final pension pot figures, apply a terminal bonus to one and not the other and the one that is given the bonus they work out the annuities calculations without the bonus included! You write or ring them and responses take some 10 days to arrive and raise more questions then answers.

It is not unusual for the plan with the GAR to get lower bonuses than the plan with no GAR. Does the GAR apply to both non-protected and former protected rights or just protected rights? Protected rights would not be expected to have the same due to the requirements on protected rights at that time.

Going back through the years of paperwork I notice that at no time did Sun Alliance, Resolution or Phoenix ever mention the Guaranteed Annuity Rates that both policies had written into the original schedules indeed the occasional illustration of likely annuities were calculated @ the lower rates then current.

They dont need to mention them as they would be detailed on the policy document. As for projections, the FCA sets the projection requirements on example projections. So, that is out of their hands.

Flashgordon

Phoenix say both Protected and Non-Protected policies have the GAR of 10.93% and have added a terminal bonus to the Protected but not the other although the original policy schedules show both having such a benefit (originally called a Capital Bonus).

Obviously I do feel very fortunate that I signed up in 1988 just before GAR's were terminated and urge everyone to check their policies if taken out before 1990 as I know of no other legal way to get this sort of return and it should not be given away even if the current pension holder has bad reviews.

The full GAR is subject to taking a single life, no guarantee, no escalation, payable annually in arrears annuity but Phoenix has flexibility and can offer a joint life, 5 year guarantee, payable monthly in advance solution for a reduction to 10% or variations on the theme. Anyone needing the 25% tax free lump sum can still do so but if the Lamborghini (or in my case Ford Focus) can wait then take the extra income this produces over, hopefully, the next 25 to 30 years.