No GMP on Scottish Widows contracted out personal pension

patricia1066

Was it possible to take out a personal pension that wasn't a GMP?
My husband is a high earner, averaging £40k pa and this pension had only HMRC contributions. He has other DC and DB pensions, so is seriously considering the transfer value of £60k.

It forecasts that he might get £1660 at 65 in 2028. That is, £31.92 pw.

His COPE is £73.10 and there is no information on the SERPS element, just that he has 41 fully paid years, and will get the new State Pension after 6 years paying NI

If he paid in nothing further he will receive £126 in adjusted SP.

Any thoughts?

xylophone

It would seem that this was a "protected rights" type arrangement rather than a GMP?

There used to be special rules around protected rights but these no longer apply.

With the ending of the PR rules, he has a personal pension which is available to him from age 55 - he could then take PCLS of 25% and draw the balance as taxable income but if he is currently contributing to a DC pension, he should see

http://adviser.royallondon.com/technical-central/pensions/contributions-and-tax-relief/defined-benefits-and-the-mpaa/

As he is currently employed and paying NI his contributions will add to his "starting amount" - see https://www.gov.uk/new-state-pension/how-its-calculated

patricia1066

Oh xylophone, you are so quick with the advice I needed. So it is fine to transfer, as the only benefits accruing are the partner's benefit and indexation which is added to his SP I believe. He won't be taking money out, the value will stay invested in a SIPP so there is no effect on future tax free drawdown. I will keep that article as a reference though. I have so much to read!

xylophone

you are so quick with the advice I needed

No advice on the forum, just suggestions:)

So it is fine to transfer, as the only benefits accruing are the partner's benefit and indexation which is added to his SP I believe.

I am not quite sure what you mean by this.





As far as I can make out, your husband at some stage contracted out of SERPS and set up a pension plan with SW into which the NI rebates could be paid? (Contracting out on this basis ended in 2012.)

There were no other contributions to this plan other than the NI rebates.


These rebates are the former "protected rights".

Protected rights are no more so he has ordinary personal pension rights.

He should check the above with SW.

Assuming that the above is correct, he can approach his SIPP provider concerning a transfer in of the SW pension.

With regard to his state pension, the full NSP has been reduced by a deduction for contracting out.

However, he can increase his NSP up to the full rate by continuing to pay NI contributions as explained in the link in my previous.

patricia1066

xylophone wrote: »

No advice on the forum, just suggestions:)

Clarification for the confused! That's what I meant.

I am not quite sure what you mean by this.

Should the COPE equal the Contracted-Out-Deduction for 1987 to 2012? If so then DH is doing worse than if he had stayed contracted in as he has a deduction of £73 to look forward to every week.

As far as I can make out, your husband at some stage contracted out of SERPS and set up a pension plan with SW into which the NI rebates could be paid? (Contracting out on this basis ended in 2012.)

There were no other contributions to this plan other than the NI rebates.


These rebates are the former "protected rights".

Protected rights are no more so he has ordinary personal pension rights.

He should check the above with SW.

Assuming that the above is correct, he can approach his SIPP provider concerning a transfer in of the SW pension.

With regard to his state pension, the full NSP has been reduced by a deduction for contracting out.

I will suggest he does this. I googled Protected rights, and I don't think it is a guarantee, just a statement that the pension provider would try to reduce risk. Have I understood?

greenglide

indexation which is added to his SP I believe.

If you are referring to inflation proofing of the GMP this no longer happens for nSP (but it does continue for anyone with a SPa of 5/4/2016 or earlier.

In practice many people got little or nothing out of this as the COD has to wipe out the notional AP (or the other way round?) first.

Public sector schemes are undertaking the inflation proofing for members with an SPa, currently, from 6/4/2016 to 2018.

xylophone

With regard to contracting out and the calculation for new state pension see

https://www.whatdotheyknow.com/request/265096/response/646107/attach/2/single%20tier%20valuation%20contracting%20out.pdf

The figures are out - for Basic State Pension read £119.30 and for new state pension read £155.65.

In sum, your husband's new state pension "starting amount" was calculated at 6 4 16 under the old rules (BSP +(ASP- deduction for contracting out ) and under the new (NSP - COPE) and his "starting (foundation) amount is the higher of the two.

With regard to "protected rights", the likelihood is that at some stage around 1998 your husband was in an employment which did not offer a DB scheme and he chose to contract out of Additional State Pension (aka SERPS/S2P) using a Scottish Widows arrangement/policy/scheme - therefore rebates were paid on his behalf into that scheme.

The money went into a "protected rights" arrangement and had to be used in a certain way when benefits were taken. See http://www.financialadvice.net/protected_rights_pension/zone/378

However, from April 2012 contracting out on this basis ended and "protected rights" are now known as "former protected rights" - they were converted into ordinary pension rights so the pension comes under normal DC rules.

Your husband should check his precise situation with Scottish Widows.

dunstonh

Was it possible to take out a personal pension that wasn't a GMP?

Yes. Indeed, the vast majority of pensions do not have GMP. Mainly stakeholder pensions, personal pensions and SIPPs.

I will suggest he does this. I googled Protected rights, and I don't think it is a guarantee, just a statement that the pension provider would try to reduce risk. Have I understood?

protected rights no longer exist. They were reclassified as non-protected rights in 2012.

patricia1066

xylophone wrote: »

With regard to contracting out and the calculation for new state pension see

https://www.whatdotheyknow.com/request/265096/response/646107/attach/2/single%20tier%20valuation%20contracting%20out.pdf

The money went into a "protected rights" arrangement and had to be used in a certain way when benefits were taken. See http://www.financialadvice.net/protected_rights_pension/zone/378

However, from April 2012 contracting out on this basis ended and "protected rights" are now known as "former protected rights" - they were converted into ordinary pension rights so the pension comes under normal DC rules.

Your husband should check his precise situation with Scottish Widows.

That protected rights link states that the annuity purchased needs to be indexed against inflation, it is the opposite of a guarantee, its a restriction on a minuscule pension pot. Reclassifying it as Non-Protected Rights is like John Cleese encountering a Dead Parrot.

Thank you all. I spent a few hours crunching the numbers and me and DH now understand how the SP is calculated.

“
Next question to ask an IFA if he can do better than the Scottish Widows transfer offer.

xylophone

Next question to ask an IFA if he can do better than the Scottish Widows transfer offer.

I don't quite follow - this is just a personal pension pot now and SW will tell you its value - his choice is either to stick with SW or transfer out to his SIPP/another pension arrangement?

patricia1066

I had a brain fart, I was thinking of choice of annuity, and applied that thinking to the valuation of the pension. Not the same thing at all.