S32 - LTA Valuation

DairyQueen

I would appreciate the forum's help as I'm struggling with this and can't find anything specific on the web.

Mr DQ has an old (1988) S32 buyout (Aviva ex Norwich Union).

No annual bonuses have been applied since 2001. The final bonus is unknown/not guaranteed but, using 1988 policies maturing this year, the value at policy retirement age (63) is projected to be in the region of £35k.

Mr DQ turned 61 this year.

Thanks to a 8.5% escalation rate the policy GMP is projected to be £3115p.a. at GMP age (65) but with no indexation once in payment. Having read threads and rulings about the "Harris' case it's possible that Mr DQ may fall into the group that receives a pension equal to the GMP equivalent from policy retirement age (63 in his case) rather than GMP age. Unfortunately Mr DQ has err.... 'mislaid' the policy documents, and has yet to request a replacement, so that's currently speculation.

Given the GMP value Mr DQ plans to take the pension regardless of whether he qualifies for benefits at age 63 or 65.

He has 2016 fixed LTA protection (£1.25 million) and we are now at the stage where I need to monitor his pension value against LTA. The S32 is only a small percentage of his pension but could tip him into exceeding the LTA at some point if I screw-up the valuation.

So, how is it valued currently and at the point of crystallisation (which may be age 63 or may be age 65)?:

- Now - age 61.
Use the current transfer value? (£24715 and unlikely to change before maturity).

- At maturity date - age 63
Use a self-calculated, projected fund value? (likely to include terminal bonuses but not guaranteed), Or use an annuity-based, projected valuation of the GMP (assuming he qualifies for payment of a GMP equivalent at policy retirement age)?

- GMP age - 65
Use an annuity-based valuation: i.e.(starting GMP of £194.48 X 8.5% compounded from 1988) x20 ?

Or something else?

Thanks in advance for your help.

woolly_wombat

All I can tell you is that Mr WW received a valuation for LTA purposes from Aviva for his (formerly Norwich Union) S32 policy shortly before his GMP age.

Suggest you contact Aviva.

DairyQueen

woolly_wombat wrote: »

All I can tell you is that Mr WW received a valuation for LTA purposes from Aviva for his (formerly Norwich Union) S32 policy shortly before his GMP age.

Suggest you contact Aviva.

Thanks for this.

Do you recall the retirement age of Mr WW's policy? Was it GMP age? Or younger? I ask as Mr DQ's policy retirement age is 63 but there is no way the fund value will support the GMP value then, nor at age 65.

Himself has been in touch with Aviva but they refuse to provide a projected fund valuation. The only valuation available is the current transfer value and that excludes any terminal bonuses. Unsurprisingly, Aviva made zero mention of the GMP until they were pressed for a projection of its value.

I'm clueless re: how to value this pension.

woolly_wombat

Mr WW's retirement age was the same as the GMP age, and the fund value had been suppressed for many years at well below what would have been required to support the GMP.

luckyfool151

There should be no reason why they can't project a FV. You need to challenge that.


Also, if it is in an s32 it may depend on the provider as to how they value it for LTA purposes in the different scenarios e.g shortfall or GMP plus excess. They should also be able to answer that.



Looking at the figures (£3k pension £24k FV. It looks quite likely that it is going to be a funding shortfall but you already know that this is dependent on future annuity rates and the FV at retirement.



So if it is a shortfall my expectation would be the DB method which would be the GMP X 20. If it is an excess they could use the full FV divided by the applicable LTA or they could use the DB method for the GMP element plus the excess as DC.


In summary. Ask.


1. Why you can't project a FV?
2. What the GMP is at SPA if you are not clear ( I think you may already know this)

3. How do you value the GMP in the shortfall or excess for LTA purposes. Make it clear that this is all for the purposes stated in your post and insist that this is critical for tax purposes.
4. If there is a funding shortfall and the NRD is less than 65, what their stance is. This can also vary from provider to provider I believe. Ask for T and C's.



Hope this helps

DairyQueen

luckyfool151 wrote: »

There should be no reason why they can't project a FV. You need to challenge that.


Also, if it is in an s32 it may depend on the provider as to how they value it for LTA purposes in the different scenarios e.g shortfall or GMP plus excess. They should also be able to answer that.



Looking at the figures (£3k pension £24k FV. It looks quite likely that it is going to be a funding shortfall but you already know that this is dependent on future annuity rates and the FV at retirement.



So if it is a shortfall my expectation would be the DB method which would be the GMP X 20. If it is an excess they could use the full FV divided by the applicable LTA or they could use the DB method for the GMP element plus the excess as DC.


In summary. Ask.


1. Why you can't project a FV?
2. What the GMP is at SPA if you are not clear ( I think you may already know this)

3. How do you value the GMP in the shortfall or excess for LTA purposes. Make it clear that this is all for the purposes stated in your post and insist that this is critical for tax purposes.
4. If there is a funding shortfall and the NRD is less than 65, what their stance is. This can also vary from provider to provider I believe. Ask for T and C's.



Hope this helps

Thanks for the very useful information.