Tax free confusion section 32

GDJTAM

I have a pension with Clerical Medical that has pre 1988 GMP and post 1988 benefits totalling a pension fund of £77460.

I appointed a Financial advisor who is registered to unbiased and linked to pensionwise.

Thinking I could have £19300 pounds as a tax free sum from the pension fund value, I was disappointed when Clerical Medical gave me a statement that read:

Pre 6.4.88 £910.03 post 6.4.88 £1009.07 Total Pension pa £1919.13
Tax free cash £13264.31

Clerical Medical uses the total fund of £77459.88 to buy an annuity if no cash sum given or

Clerical Medical pays a pension commencement lump sum of £13264.31 and uses the balance of £64195.57 to buy an annuity.

My advisor is a restricted advisor and I have no doubt that he is acting in my interest. However, because we are now in a world scepticism I am wondering why I can't get my hands on a cash sum of £19k? I have to be honest and say I don't understand why Clerical are keeping over £6k of my tax free allowance?

The IFA looked at purchasing an annuity with JUST but their annuity is £500 less per annum.

Would I be better going to a whole of market IFA?
Why is Clerical Medical keeping 6K of my £19k tax free cash sum.

Many thanks

Dazed_and_confused

My advisor is a restricted advisor

The IFA looked at purchasing

Is your advisor restricted or an IFA?

Or do you have two people looking at this?

dunstonh

I appointed a Financial advisor who is registered to unbiased and linked to pensionwise.

No adviser is linked to pensionwise. Any claim saying that is a lie.
unbiased is no longer an IFA directory. It is a lead generation site that includes restricted FAs and not just IFAs. Most IFAs I know have stopped using unbiased.

My advisor is a restricted advisor and I have no doubt that he is acting in my interest.

A restricted adviser is required to act in your interests but only using the products they have available. So, you may end up with the best product in their range but it wont likely be the best product available.

The IFA looked at purchasing an annuity with JUST but their annuity is £500 less per annum.

You said the adviser was restricted. Now you say they are an IFA. Which is it?

Would I be better going to a whole of market IFA?

IFAs are whole of market by definition.

I think you need to clear some things up
1 - No adviser has an affiliation to pensionwise. Have they given that impression (leads to credibility and honesty)
2 - A restricted FA cannot be an IFA. Its one or the other
3 - IFAs are whole of market and cannot restrict in any way.

Why is Clerical Medical keeping 6K of my £19k tax free cash sum.

The FA or IFA or whatever they are should be able to tell you this. Although if it is a restricted FA, they may not have the regulatory permissions to give product specific advice on the products and investments or other providers beyond generic detail.

However, it's most likely that the fund value of the 75% element is insufficient to meet the GMP but is if it uses some of the 25% element.

However, because we are now in a world scepticism I am wondering why I can't get my hands on a cash sum of £19k?

What is a world scepticism?

Aegis

It looks like this is one of the odd cases where there is enough balance to fund the required minimum pension, but only by making use of some proportion of the fund that would otherwise be used to fund the tax free lump sum. This should mean that you can "unlock" the additional tax free element by transferring from this scheme to an alternative, however the infuriating aspect of the transfer is that it will be considered "safeguarded rights" and will therefore require an adviser to sign off the process after giving formal advice on the suitability of the transfer. Unfortunately this could end up being fairly expensive depending on who you use, which may itself need to be factored in when considering your next actions.

xylophone

To expand on post 4 above (in case it is helpful).

https://www.financialadvice.net/s32_buy_out_plan/zone/1288

Tax Free Cash

Funds can be used to provide tax-free cash up to the Inland Revenue maximum (excluding the fund being used to provide GMP). If much of the fund has to be used to provide the guaranteed minimum pension, the balance if any can provide tax free cash.

The GMP is a "safeguarded benefit".

See below on page 3 and page 5.


https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/495377/pension-benefits-with-a-guarantee-factsheet-jan-2016.pdf

Re pension transfer specialist

https://www.pruadviser.co.uk/knowledge-literature/knowledge-library/pension-transfers-conversions/

hyubh

Aegis wrote: »

This should mean that you can "unlock" the additional tax free element by transferring from this scheme to an alternative, however the infuriating aspect of the transfer is that it will be considered "safeguarded rights"

I am an Independent Financial Adviser

Referring to giving up an income from an insurer as 'unlocking' and the legal hurdles in place that don't make doing so quick and easy as 'infuriating' - hmm.

Aegis

hyubh wrote: »

Referring to giving up an income from an insurer as 'unlocking' and the legal hurdles in place that don't make doing so quick and easy as 'infuriating' - hmm.

It's an annuity - that income can be replicated with an equivalent sum in cash from either another pension or from a lump sum in his own name. If he converts the PCLS into a purchased life annuity at much the same rate he can get within a pension, the income received would be largely tax free instead of taxable, therefore this option is mathematically superior in every way apart from the need to take advice prior to transfer, hence that requirement is infuriating. Notwithstanding this, many people don't want annuities these days because the rates are so poor, and instead prefer to have a more flexible option.


Other than my choice of wording, was there actually anything you disagreed with in my statement?

sandsy

Under this contract, Clerical Medical HAS to provide you with an income of £1919.13 or it is in breach of contract. At least some of that income will increase each year.

It costs CM £64,195.57 to provide that income so you are only entitled to the balance as a tax free lump sum. Bear in mind that if your pot was less than that amount (and many of these contracts are in that position), they would still be obliged to pay you the income of £1919.13.

Do you have a specific reason for wanting more tax free cash? What you've been offered isn't unfair. Most people need an income more than they need a cash sum in retirement.

If you want to take the benefits a different way, you'd have to transfer out to a different pension. And by law, you have to take advice to do this but there are no guarantees that an adviser (whether independent or restricted) will think its in your best interests to take the benefits in a different way.

xylophone

but there are no guarantees that an adviser (whether independent or restricted) will think its in your best interests to take the benefits in a different way.

Indeed but he is compelled only to obtain the advice, not to follow it.

That said, without a positive recommendation to transfer, his choice of transferees could be limited.

woolly_wombat

GDJTAM wrote: »

Thinking I could have £19300 pounds as a tax free sum from the pension fund value, I was disappointed when Clerical Medical gave me a statement that read:

Pre 6.4.88 £910.03 post 6.4.88 £1009.07 Total Pension pa £1919.13
Tax free cash £13264.31

You are fortunate to be offered anything in excess of what is required to cover the GMP.

My OH's Norwich Union (now Aviva) Section 32 only covers the GMP.

Lucky you!

DairyQueen

Mr DQ also has a Section 32 with Aviva (ex NU).

Thanks to over-optimistic escalation rates he will receive in excess of £3k per year from age 65 for a policy valued at around £30k. Plus, as his policy retirement age was 63, he will receive a reduced pro rata amount from then until he reaches GMP age of 65 (Harris v Aviva applies). The only downside is that, thanks to the government's withdrawal of their commitment to pay inflation-increases on GMP, that amount will never increase.

All-in-all he is extremely lucky to have received that safeguard.