Guaranteed annuity income provision.

kidmugsy

I'm familiar with guaranteed annuity rates (GARs), but this is a new one to me.

In a letter in this morning's Ask Jessica column in the Tel, someone is moaning about the return projected for his £10 p.m. pension contribution, started in the early eighties. She's discovered that if he hangs on until age 70 and takes his annuity then, it's not the rate that's guaranteed but the minimum annuity payout itself namely £1012 p.a. Did you ever?

dunstonh

We all know GARs. However, you do come across guaranteed minimum payments. i.e. the annuity rate is not guaranteed but there is a minimum basic annuity that it cannot be lower than. These tend to go back to the old conventional with profits days for plans with 1970s/80s set up.

You also get plans with guaranteed minimum maturity values. I have seen them on several S226 RACs. If held until retirement, you cannot get less than that amount. I have even seen a version with that minimum maturity value and a GAR on the same plan.

kidmugsy

dunstonh wrote: »

... you do come across guaranteed minimum payments ... You also get plans with guaranteed minimum maturity values ... I have even seen a version with that minimum maturity value and a GAR on the same plan.

The advantage of being a pro and not an amateur.

bigadaj

kidmugsy wrote: »

I'm familiar with guaranteed annuity rates (GARs), but this is a new one to me.

In a letter in this morning's Ask Jessica column in the Tel, someone is moaning about the return projected for his £10 p.m. pension contribution, started in the early eighties. She's discovered that if he hangs on until age 70 and takes his annuity then, it's not the rate that's guaranteed but the minimum annuity payout itself namely £1012 p.a. Did you ever?

I'd not heard of this but it's interesting.

Not sure about them moaning though, that's a better return than an open market annuity but then again £10 was worth a bit more in 1982 than it is now.

dunstonh

The moaning seems strange as the open market option is still available (as are other pension freedom options). The minimum payment is just that. A worst case scenario.

DaveMcG

I think the Pru had something like this on some early policies. As dunstonh said, it isn't that odd when you consider that many with-profit policies had minimum sums assured and GARs, so it is just a combination of these.

Malthusian

Pays £5,390 in premiums. Gets guaranteed income of £1,012 per annum from age 70. Moans about it to the Telegraph.

The UK finance industry must have really cleaned up its act if this is all the Telegraph's agony aunt has to run with.

Freecall

I had a Guaranteed Maturity Value on one of my pensions which was closed to further contributions.

About 12 years prior to maturation, based on the then current transfer value, I calculated that I would need to achieve an annual return of about 6.1% to meet this figure. At that time, I was achieving somewhat better than that on my other pension savings so at first glance, this may not have been a daft thing to do.

But it stayed firmly where it was. The point is that the 'G' word has a value.

6.1% Guaranteed is very different from achieving the same figure on open market investments.

:cool: