Free annuity - A gift or a curse ?

AlwaysOnTheGo

I have just discovered I have a £33k pension pot coming my way via delayed probate however I am told because of the type of investment made (an opted out of SERPS plan) and the fact it is over £30k I must take an annuity. I know nothing about annuities except for the current bad press about poor interest rates. I am female 52 with two teenage children and a mortgage. I am currently on benefits.

I have 3 pensions of my own that total £100k pot and 29yrs NI credits. What products should i be looking at if I want to try and draw down cash asap or alternatively would I be better to reinvest the annuity payments to build a bigger pot for my retirement or do I have other options available to me?.

xylophone

I have just discovered I have a £33k pension pot coming my way via delayed probate however I am told because of the type of investment made (an opted out of SERPS plan) and the fact it is over £30k I must take an annuity

Who has told you this?

Is there no possibility of transferring this pension into one of your own pension arrangements?

jamesd

You don't have to take an annuity.

It is common for pension firm's to tell people only about the products that they offer. This firm may offer only annuity and if so the solution can be a transfer to another firm.

However, the mention of 30k suggests that the pension pot may have a guaranteed annuity rate (GAR) attached. Those can be much higher than current open market annuity rates so it is worth asking them what the guaranteed benefits are and when they are available. A guaranteed annuity rate might be about 8% of the pension pot value a year, so £2640 a year, £50.76 a week. Or more, or less, rates vary. For life. There could also or instead be a guaranteed minimum pension (GMP), a regular payment like an annuity, just a different flavour, and those were normal in many contracted out pension plans. Again higher than current open market annuity rates.

It used to be a legal requirement that when benefits were taken from a contracted out (of SERPS) pension a dual life inflation-adjusted annuity had to be purchased. This requirement was abolished a few years ago and no longer applies. Today these are pots of money like any other. But if there is a GAR or GMP there is a legal requirement to get professional advice before transferring and that would cost a couple of thousand Pounds a well as probably not being the best long term choice.

The normal treatment of an inherited pension pot today depends on the age of the person who died. If they were under 75 the whole pot is available as a tax free lump sum. If 75 or older the recipient can take money from it at any age and the money will be treated like additional taxable income for them. I think that the same may apply to GMP and GAR but I'm not sure. I'm also not sure that the rights to a GAR or GMP can be inherited though it seems as though this provider is offering at least one of them. But the date on which they died matters because it could be more than a couple of years ago and subject to the older rules that applied when they died.

Any income you take will affect your entitlement to means tested benefits and has to be declared. Same for lump sums. But normally you aren't forced to take anything from a personal pension pot until you reach Pension Credit age, which is the state pension age for a woman. Until you choose, it's ignored. Or from PC age it's counted even if you don't take it.

So the next thing to do is ask them about the guarantees and conditions. Then we should be able to give you a better idea of your options.

AlwaysOnTheGo

@xylophone: I have been told this by Z****h pension team customer services. It is a former protected rights pension. I haven't had any financial advice yet hence asking here so I have some idea what products I should be looking at.

@jamesd. I believe you are right and this falls under the old rules. The policy holder was 42 at death in 2010 (see sig file) and the pension rules changes only cover pensions where the policyholder died after 6th April 2012 so I am stuck under the old rules - I was also told the pot was slightly too big to take as a lump sum under the small pensions rules even though I offered to give the difference to a charity of their choice to enable me to take the cash.

I haven't asked about guarantees or conditions, Z****h are not advising me at all, just saying it is there and mine and I need financial advice.

jamesd

Best to ask them about those things and if they would be payable to you now and at what rates. Anyone advising you needs to have that info to do it decently.

Malthusian

Not sure why Zurich is a swear word.

Since this is not a pension plan in your name but someone else's plan from which you are due to receive a dependent's pension, it is very possible that a dependent's annuity is the only option available to you. If he'd had a more modern pension plan and/or died later the situation might be different and what you say about "old rules" has the ring of truth. But I can't say that for certain on second-hand information.

Given that you have a £100,000 pension fund in your own name you should be able to find an IFA who will advise you on this either for a one-off fee or as part of providing ongoing advice on your pensions generally.

AlwaysOnTheGo

Looking through some paperwork sent to me 7 years ago I have JUST realised I have lost out £1500 a year for 7 years in payments because my mental health has been too fragile to cope with organising probate. This makes me sad.

xylophone

You were widowed in 2010 and your late spouse had a protected rights pension policy with Zurich?

AlwaysOnTheGo

yes, it appears so but for years I have been unable to face doing the paperwork.

xylophone

As you were the widow of the policy holder, and the rules in 2010 would have required the provision of a spouse pension, would probate have been required in respect of the policy?

At all events, as James says, in view of the fact that you have other pensions and are unsure of how to proceed with this one, a full pension review by an IFA could well answer the purpose?

https://www.unbiased.co.uk/

Malthusian

AlwaysOnTheGo wrote: »

Looking through some paperwork sent to me 7 years ago I have JUST realised I have lost out £1500 a year for 7 years in payments because my mental health has been too fragile to cope with organising probate. This makes me sad.

I doubt you have lost anything. Most likely you were entitled to the payments from 2010 and the missed payments will be paid out to you when you eventually claim it. I could be wrong given it has been so long since the pension should have started but that would be the usual way.

Probate should not come into it as the pension is not part of your spouse's estate. Proof that he is dead, that you are his spouse, and your bank details are all that would normally be required.