phoenix life annuity quotation

thebullsback

Hi everyone ,my wife is about to draw her PP from Phoenix Life on 22nd of january 2016 she had this quotation
Total Fund -£20,383 inc. former protected rights of £12,409
Annuity quotation for FPR £932 single life or £698 if lump sum of £3,102 taken
Non Protected Rights £625 or £468 if lump sum of £1993 taken

Phoenix Life guided my wife towards this option and away from "cashing " the whole policy in as she first asked them to do but they refused unless IFA was taken.This she did and was advised to go for the Annuity option either with or without the tax free lump sum option.

She asked for another set of form to be sent out and this time the figures are

Total pension value £20,423
Annuity quotation for former protected rights
£525 single life
£376 and lump sum £3,108

Non Protected Rights £629 or £472 if lump sum of £1997 taken.

There seems to be a very large differance in the two quotes considering they are only 39 days apart.
Any comments please.

xylophone

Total Fund -£20,383 i

but they refused unless IFA

On what grounds?

thebullsback

wife rang PLand was told she must seek advice from an IFA and they must also verify that she had taken advice.
My wifes initial choice was to take the whole fund minus any tax at 20%

ffacoffipawb

Looks like the policy has a Guaranteed Annuity Rate (GAR) based on the first set of quotes.

The second set seems to have missed this GAR.

IS there a mention of GAR anywhere?

Whilst the fund value has a GAR its true value is over £30,000 hence the need for advice, but the second set of quotes look too low.

dunstonh

It isnt the fund value that decides the £30k. it is the cost of the replacing the guarantee that does.

ffacoffipawb

dunstonh wrote: »

It isnt the fund value that decides the £30k. it is the cost of the replacing the guarantee that does.

That's what I said, or tried to say.

dunstonh

ffacoffipawb wrote: »

That's what I said, or tried to say.

you said it 2 minutes faster than me

thebullsback

three questions now.
looking at the original and second quote sent would you say a mistake has been made?
Could my wife ask for all the fund to be paid out to her less the required tax?
Does she need the involvement of a IFA on any points asked.

xylophone

Can you confirm whether or not the pension offers any safeguarded benefits?

http://adviser.royallondon.com/news/pensions/2015/may/safeguarded-benefits/

dunstonh

If there are any safeguarded benefits and the value of those benefits exceeds £30,000 then she needs an adviser if she wants to do anything other than utilise those safeguarded benefits.

jamesd

thebullsback wrote: »

Annuity quotation for FPR £932 single life or £698 if lump sum of £3,102 taken
Non Protected Rights £625 or £468 if lump sum of £1993 taken

Phoenix Life guided my wife towards this option and away from "cashing " the whole policy in as she first asked them to do but they refused unless IFA was taken.This she did

She is now free to do whatever she wants, including cashing in the whole policy.

They may have been required by law to make her seek advice before doing anything other than buying an annuity or taking a 25% tax free lump sum. This is required by law where the estimated value of the benefits provided, not the pot value, exceeds £30k. She is not required to follow that advice, just get it and prove she has done so. But given the pot values I'm not sure that the value of the income really was above £30k.

It's usually a very bad idea to buy an annuity from the firm where you have the money because they usually do not offer the highest annuity income for your money. The possible exception is if there is a guaranteed annuity rate or guaranteed minimum pension. These can be significantly higher than open market annuity rates. It appears that this may apply here.

Usually the best guaranteed income deal is found by using drawdown on the pension and deferring the state pension. This pays 10.4% inflation-linked for life and mostly inheritable by a spouse for those who reached their state pension age before 6 April 2016 or 5.8% after, not inheritable. Both pro-rated for less than a year.

The Phoenix rates are:

£932 from £12,409: 7.51%, this should be inflation linked because it's former protected rights, meaning it was from payments due to contracting out of the income-related part of the state pension.
£625 from £7,974: 7.8%. Is this inflation linked or level or something else? Given the FPR one it may be an inflation-linked guaranteed annuity rate.

Assuming that these are both inflation-linked and that she reaches her state pension age from 6 April 2016 those are a better deal than state pension deferral.

£525 from £12,409: 4.2% FPR so presumably inflation linked.
£376 from £7,974: 4.71% might be inflation linked, might not be.

Those are worse than state pension deferral. She should ask them to explain why these are so much lower than the original ones.

Sometimes there are time limits for guaranteed annuity rates and delay might have caused a limit to be missed but this shouldn't apply to a GMP for former protected rights.

One set of numbers appears to be wrong but there's no way to tell which without asking them.

We know that at least one part, the FPR, has safeguarded benefits because it has an obligation to pay GMP. If there's a guaranteed annuity rate for the rest it would also have a safeguarded benefit. Since she has taken advice, though, this no longer matters and she is free to do whatever she wants with the money, including taking it all as a lump sum.

thebullsback wrote: »

Any comments please.

Ask them why. No way for us to tell and the best decision for income generation depends on which it is. Depending on the answer it really could be the best idea to take the annuities.

So far as lump sums go, if the first numbers are right her best option would normally be borrowing and using the income to repay the borrowing. This is because borrowing can normally be done for less than the value of the income. Whether it's 0% for purchase or money transfer credit cards of a normal or equity release mortgage it's likely to be cheaper than the value of the lost income.

Throughout this post I've assumed:

1. that she is close to the normal state pension age for women reaching state pension age today.
2. that she is in normal good health and not suffering from any condition that significantly reduces life expectancy, whether that's illness or being a smoker, overweight or whatever else.

If either of those assumptions is not true the best answers can change dramatically so we'd need to know about it to make decent suggestions.