When is a Buy Out Policy a Section 32 and when is it not? And what are pros/cons pls?

agarnett

The main question is in the thread title.

I think I may have two S32 contracts:

1. One is a buy out default of a healthy but stopped and then wound up DB plan
2. The other is what became of a wound up Executive Pension Plan or Group Personal Pension (DC) of which I became the sole member. That one I think certainly started as an EPP then was converted to a GPP same provider while I was still employed at the same place. After getting on for 30 years it is still with the original provider albeit thrice taken over, and when the trustees finally wound up the Group Scheme with me as the last member a few years ago, the provider even kept the same policy number. They renamed it a "deferred annuity" but I wonder if that is another way of saying it became an S32 of some kind?

Neither actually make reference in the policy to "Section 32" but 1. above has been referred to as such in print both prior to issue and in subsequent and even recent correspondence that periodically refer to it as such.

Actually in a phone call to the provider a few weeks ago when I referred to 1. as a Section 32 Buy Out policy, the call centre guy immediately sought to correct me and assert that it was a Buy Out but not an S32. I queried it, and they subsequently have admitted they were wrong, but I am none the wiser of the actual difference, and they haven't been able to tell me yet either!

Is S32 just another way of saying that whatever member benefits stood (i.e. liabilities to the scheme in respect of my original pension promise) as core to the original occupational pension scheme, are acknowledged by the new provider (insurance company) as now being their responsibility in consideration of the premium they accepted for taking it over?

xylophone

http://webarchive.nationalarchives.gov.uk/+/http:/www.hmrc.gov.uk/manuals/rpsmmanual/rpsm02104010.htm

agarnett

Thanks xylophone - you are a constant bright technical star in this forum.

But on this occasion, had you noticed how the explanations seem so circular and lacking in real substance?

So a Section 32 policy is always a "deferred annuity" contract ? But Section 32 of Finance Act 1981 does not actually employ that phrase. It does use the word "annuity", but I find this statutory wording is itself somewhat circular in the way it describes liabilities of "the scheme" i.e. 'the Occupational Pension Scheme' which is being replaced by the insurance company annuity contract which is intended to take over the liabilities (and round and round we go ...)

I am concerned that the insurance companies aren't the least bit interested in keeping records of "the {original} scheme" and quickly over the years from the buy out start handling the policy and reporting on it like it is any old DC pension plan with no history at all leading to its inception.

It looks to me like providers of Section 32 contracts actively set-out to de-link their sold Section 32 policies from the scheme which preceded them, and that the HMRC archive note you've linked to can almost be read as confirmation that the insurance company has the right to do that! I quote the article you liked to: "A deferred annuity contract stands apart from the pension scheme from which it arose."

My thoughts on reading that are "Yes ... of course ... but it is very much based upon the intended benefits to the member of the pension scheme from which it arose ... and therefore ... ?"

I also wonder about the original intention of Section 32 of the Finance Act 1981. Was it solely to give pension schemes access to a new insurance industry product that could be used as a purchasable "get out" alternative to seemingly never-ending liabilities to certain groups of members in their schemes?

Was Section 32 the first obvious answer to trustees and finance directors who were beginning to question how and whether they could ever wind up long term liabilities by winding up pension schemes, or was it for some other purpose originally? The bulk of pension scheme windups didn't happen until 20 years later, did they?

Does "deferred annuity" imply a pre-determined level of annuity in every case? That would mean that the insurance company has taken over the risk of an open ended DB scheme benefit for example? Isn't that what insurance companies do? Take risks in exchange for policy premiums?

So why do my Section 32's not report actual levels of annuity deferred until my retirement date instead of seemingly shoving mountains of risk back my way suggesting DC investments go down as well as up and making distracting projections based on arbitrary growth percentages?

xylophone

You will recall that 1978 saw the beginning of the GMP regime - I would imagine that the intention of S32 of the 1981 Finance Act was to provide a pension transfer product ( for those in schemes that were winding up/early leavers) that would in some measure protect retirement income for such people, particularly the GMP.

http://www.pruadviser.co.uk/content/knowledge/technical-centre/section_32/

may be of interest.

agarnett

Very good point.

And thanks again for another very informative link.

agarnett

Nearly four weeks ago I asked the National Insurance Contribution Office for confirmation of my entitlements to GMP as I am approaching retirement age.

I called them again this week and they say it might be another month before they can tell me what it might be.

I was pleasantly surprised they said they could do it in the first place, because part of the recorded message I was forced to listen to whilst I was waiting for the call to be answered suggested I had to ask my pension provider that question! Then because I pressed "2" for "No I don't want to answer survey questions at the end of my call", the call was terminated because they were busy at the moment the recording said! And that was after I had answered the flippin' computer with a whole raft of computerised security questions most answered two or three times in impeccable English! Anyway, I knew better in the next attempt at calling NICO - I said yes to the survey question, but this time I had to say "my voice is my password" three times so that NSA/GCHQ could track me with long range microphones in airports or on phone calls I guess.

I got through fairly promptly after selling my soul to a database like that. That's when I learned I have to wait another month.

So, could I get the information from my pension provider, Aviva, whom NICO have on file as "the buyer of the GMP" ? Well ... at least NICO think they know who ought to have details already ... even if providers are being coy ...

Indeed, one of my principle pension providers including both the Section 32 policies I've mentioned, is Aviva. But the point is, I wouldn't be so daft as to trust them to get anything right, now would I? Would anyone? That's why I contacted NICO on 0300 200 3500 and stated "Guaranteed Minimum Pension" to the computer as the reason for my call, and the computer surprise surprise knew that phrase!

Thankfully perhaps, only one of the two policies contains GMP. It would be kind of nice if they both did of course, but since I have had to work so hard to convince the provider on just one, I think I'd might give up the will to live waiting for Aviva to get two policies sorted out.

However, I do still find it absolutely astounding that Aviva have barefacedly told me that they have no idea of the GMP liability on my policy, and have made no apology for it. Until recently week they were even denying it was a Section 32 policy, so I guess I shouldn't be surprised.

So, I wonder if there is anyone on the forum who can take a very rough guess at roughly what the GMP liability Aviva bought might have been? I can't imagine the numbers are so difficult to work out, are they? Is just I can't find any examples on t'internet! I found this calculator, but I can't quite see what it is trying to tell me ... https://www.pxp.ltd.uk/GMPCalculator.aspx ... maybe that the only GMP for my particular 3½ years of service was the pre-April, 97 bit?

The S32 with the GMP was a buy out of 3½ years of pensionable service ending 31.12.1999. A 60ths old style final salary DB scheme. My starting salary was around £33K at the outset in 1996 and rose to about £43K by the leaving date. I know that the GMP annual revaluation rate they reckoned should apply was 6.25%, but I have absolutely no idea what sort of figure that should have applied to. The scheme was in surplus when it was wound up. It wasn't a forced wind up, but a broken pension promise by a greedy City operator. So whatever came out of the old scheme should have paid for an exact replacement in the shape of the S32, shouldn't it (if I read S32 correctly).

WHile I'm waiting another month for HMRC's NICO to pull my file out from the backlog, can anyone help me out with a ball park figure of GMP at leaving date for a 1999 leaving salary after 3½/60ths of service like that? Then we can revalue it at 6.25% (to my 65th for GMP right?) and see how that sits with the sorts of pension illustration Aviva have been giving in recent years without even considering the GMP properly.

xylophone

So, I wonder if there is anyone on the forum who can take a very rough guess at roughly what the GMP liability Aviva bought might have been? I

Does the policy document give no details?

When a person left a COSR scheme, they were normally given a statement showing the pre 88 GMP, the post 88 GMP and excess at date of leaving.

The GMP revaluation rate (usually the appropriate Fixed Rate if it was a private rather than public service scheme) applied to those amounts.

One would have supposed that those figures must have been supplied to Aviva on buy out.

agarnett

The policy does show an amount yes - in fact a handful of amounts which are not very well contexted - but none are properly substantiated.

One is in a policy schedule note saying that there was a single contribution of close-on £4,000 invested for the GMP in WP and says it must remain invested in WP. Immediately below that it says "the investment for GMP is based on unconfirmed data and is subject to amendment".

Another says Guaranteed Minimum Pensions:
Total Amount £70.72
Amt accrued post 4.88 £70.72 (it doesn't say per week or per month or per year)
Reval rate in deferment 6.25% Fixed
Amount of TV for post 4.97 contracted out rights £15,xxx

The £4K and £15K together made up the total first premium (Transfer Premium).

The schedule says "Tax regime applicable to member post-89"

I just noticed buried in the policy conditions the following terms:

A. Where the Policy provides a GMP, NU will require the Policyholder to apportion to the WP Funds part or whole of the Transfer Premium as NU considers is needed for the GMP.

and

B. If the GMP as given to NU by HMRC NICO is different to the Guaranteed Minimum in the policy, NU may require the policyholder to alter the Transfer Premium in order to satisfy the correct details as in A. Alternatively, NU may cancel the policy and return the Transfer Premium to the Scheme. :eek:

Edit: That £70.72 looks a bit suspect ... it happens to be the exact to the penny weekly State Pension in my part of the world in 1999!