Financial Conduct Authority Certificate

jamesd

nxdmsandkaskdjaqd wrote: »

What is Critical Yield?

The guaranteed minimum pension has a particular minimum payment level. The critical yield is the level of investment growth that would be required to match the benefits provided by the GMP.

For schemes with a GMP it is typically the case that today the nominal value of the pension pot is far below the level it would take to produce the same income level as the GMP. In these cases the scheme is on the hook to pay the higher income anyway, even though the pot isn't big enough to pay for the cost.

The value of the GMP is usually so high that the investment options are irrelevant and the big value comes from leaving the money where it is and getting the GMP income level. Some exceptionally good or lucky investors might beat this but this would not apply to most. The critical yield is what gives some measure of just how exceptional the performance would have to be.

The GMP came as a result of contracted out state pension contributions where for many years schemes were required to guarantee paying at least as much as the state pension would have paid. That guarantee is the GMP level.

When there is drawdown it would normally be unwise to use the GMP pot for drawdown. The income is likely to be so high compared to the potential income of drawdown that it would be cheaper to borrow the money to invest and pay the borrowing cost out of the income.

These are generalities and it is possible that you don't actually have a high extra benefit but that's not what I'd normally expect to see. Cases where there might not be much extra benefit could be if you've paid in lots of extra money on your own beyond the minimums.

xylophone

There is a pension booklet, but says nothing about the GMP.

That is extraordinary if it's a hybrid scheme with GMP underpin.

nxdmsandkaskdjaqd

I have just found another document which states:

"The GMP part of your pension accrued since 6 April 1988 will be increased each year in line with inflation subject to a maximum of 3% per annum. If inflation is above 3% per annum, the Government will provide any additional increases on the GMP up to inflation. This will be payable through the State pension."

Does this provide any more info on how I should deal with my pension/pension pot?

AnotherJoe

nxdmsandkaskdjaqd wrote: »

I have just found another document which states:

"The GMP part of your pension accrued since 6 April 1988 will be increased each year in line with inflation subject to a maximum of 3% per annum. If inflation is above 3% per annum, the Government will provide any additional increases on the GMP up to inflation. This will be payable through the State pension."

Does this provide any more info on how I should deal with my pension/pension pot?

Only marginally (except that's not a guarantee you'll get with a SIPP until you turn it into an annuity and you'd have to pay dearly to get that), you need to know what the pension the scheme will pay out is. Is it a fiver a month increasing at 3% or five hundred a month increasing at 3%?

Contact the schemes administrators and ask them. They should be able to provide a figure should you take the pension now, or should you wait until scheme retirement age. These by the way are basic questions an IFA would be asking if you did go down the route of getting a recommendation done, the fact that you wished to plunge ahead on a transfer without even knowing what pension would be paid out, shows why advice should be mandatory.

HappyHarry

The bottom line is that it doesn't matter whether or not you understand GMP implications or not. If the requirement is to use an IFA then you need to use one. This is a legal requirement.

The IFA must give you advice, for which you will be charged.

There are many threads on this forum debating the fairness of this law. The outcome generally is that it's rarely in either the pension holder's best interest or the IFA's best interest to transfer.

nxdmsandkaskdjaqd

AnotherJoe wrote: »

Contact the schemes administrators and ask them. .

I have asked the question, but have to wait 3/4 weeks for the data.

nxdmsandkaskdjaqd

HappyHarry wrote: »

The bottom line is that it doesn't matter whether or not you understand GMP implications or not. If the requirement is to use an IFA then you need to use one. This is a legal requirement.
.

I am coming to terms with the complex nature of this GMP component and have now started to look for an IFA

nxdmsandkaskdjaqd

Thank you for all the replies todate.

Is it correct that the GMP element would be converted to Protected Rights and that cannot be taken before 65?

dunstonh stated that there is no such thing as a Financial Conduct Authority Certificate. Could you advise on what document is required to facilitate a transfer?

I am hearing that I need a Pension Transfer Specialist. What level of qualification should I be looking for when I am searching for him/her?

One thing that puzzles me at the moment is how the GMP affects the pension pot I have. Is it as simple as, it may increase the pot size? I can perhaps see how this works in annuity situation (gives a better pa rate), but with drawdown it's not so clear.

dunstonh

dunstonh stated that there is no such thing as a Financial Conduct Authority Certificate. Could you advise on what document is required to facilitate a transfer?

It varies. Sometimes it is a declaration that advice has been given. Sometimes it is sight of the suitability report. Sometimes it is part of the application process with the transaction being processed via the IFA agency.

I am hearing that I need a Pension Transfer Specialist. What level of qualification should I be looking for when I am searching for him/her?

It is a regulatory permission that is required. It is required at firm level and that firm has to have a person that is able to sign off on occupational pension transfers. Even if the adviser you see does not. When approaching firms, you need to ask if they have a pension transfer specialist able to do occupational transfers.

One thing that puzzles me at the moment is how the GMP affects the pension pot I have. Is it as simple as, it may increase the pot size? I can perhaps see how this works in annuity situation (gives a better pa rate), but with drawdown it's not so clear.

This is why the requirement for advice exists. You have decided you want to transfer before you know whether it is the right thing to do or not. In the majority of cases, it will not be the right thing to do. Hence, this extra level of protection.

jamesd

nxdmsandkaskdjaqd wrote: »

Is it correct that the GMP element would be converted to Protected Rights and that cannot be taken before 65?

Not any more. For personal pensions protected rights was the name given to sub-pots containing contracted out rebates from the government. Protected rights were protection of government rights that mandated certain things like buying a dual life inflation-linked annuity. They were abolished a few years ago and now protected rights pots are just normal pension pots.

In your case it's not the former protected rights aspect that is causing the requirement for advice but the earlier system where GMP rights accrued as an obligation of the scheme.

Some years after PR became normal pots the pensions freedom rules were introduced from April 2015 and the Commons Work and Pensions Committee asked for a change to protect people with benefits like GMP, imposing an advice requirement where the benefit was worth more than £30,000, regardless of whether the benefit was better or worse than the open market value. So for a few years an easy move was possible but not any more.

nxdmsandkaskdjaqd wrote: »

One thing that puzzles me at the moment is how the GMP affects the pension pot I have. Is it as simple as, it may increase the pot size? I can perhaps see how this works in annuity situation (gives a better pa rate), but with drawdown it's not so clear.

In effect it gives a higher income for the money spent, like a guaranteed higher annuity rate. Those can be so good that it can be daft to move the pot because the income can be so valuable. Or not, depends on the specifics. In general the benefit of the GMP is likely to be better than anything that would be likely to be achieved through better investment opportunities.