Confusion Section 32 and two funds?

jamesinnewcastle

Hi All


When I left a company over 50 years ago, my accrued pension was transferred as a lump into a pension which had two elements. Quoting from the letter written to me: £5k was automatically invested in the With Profits Endowment Fund, to secure the Guarenteed Minimum Pension and £6k invested to purchase 'excess benefits'.


Q1. What are 'excess benefits'?


Q2. Are the two funds completely seperate?


These are just the first two questions but are pivotal to the ones to follow.





Thanks in anticipation
James

xylophone

When I left a company over 50 years ago,

The pension is already in payment?

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

jamesinnewcastle

Hi Xylophone

A quote from the link you supplied:

"Any pension benefits that are not linked to providing the GMP part are known as excess pension benefits."

Back to the open forum then - can we state that:

Fact 1: The two pots are not linked in any way?

Q3. Is it true that if the the GMP pot is too small when the pension matures, then the pension company has to make up the shortfall?

Q4. Is the Pension company entitled to dip into the 'excess pension' pot to make up the shortfall?

Going a step at a time here just to keep things very clear.

Cheers
James

xylophone

Fact 1: The two pots are not linked in any way?

Q3. Is it true that if the the GMP pot is too small when the pension matures, then the pension company has to make up the shortfall?
Q4. Is the Pension company entitled to dip into the 'excess pension' pot to make up the shortfall?

You need to read the rest of the information in the link.


In summary, your S32 Buy Out policy may have two elements to it

Guaranteed Minimum Pension (GMP) - the scheme must guarantee to pay at least this at retirement. The GMP increases in value each year, depending the year you left the company scheme.

Non GMP (normal pension benefits) - sometimes known as the Excess Over GMP. Any pension benefits that are not linked to providing the GMP part are known as excess pension benefits.

GMP Shortfall - What if S32 Buy Out Returns are low?
If investment returns or bonuses are poor, there may not be enough money in the fund to fund/cover/pay for the increased/adjusted GMP pension.

If this is the case, the S32 Buy Out Provider is unlikely to allow you to transfer the S32 pension elsewhere

They will stand the loss and make up the shortfall.
In these cases, it may mean that you lose some or all of any normal pension benefit you transferred inside the S32 as these may be used to help with any GMP shortfall.



https://www.thisismoney.co.uk/money/pensions/article-3680749/I-want-pension-freedom-trapped-section-32-buyout-plan.html

xylophone

See also

https://www.barnett-waddingham.co.uk/comment-insight/blog/2014/08/18/what-is-a-gmp/

jamesinnewcastle

Hi

Sadly, none of the referenced texts answers my questions 2 and 4.

If the two funds are seperate then what happens to them/can happen to them, must also be seperate surely. Or are they seperate? If not what is the connection between them?

Any 'shortfall' can only be on the GMP pot of the two funds, the other fund didn't promise anything, being the usual 'may go up or down' clause.


Cheers
James

xylophone

Hi

Sadly, none of the referenced texts answers my questions 2 and 4.

If the two funds are seperate then what happens to them/can happen to them, must also be seperate surely. Or are they seperate? If not what is the connection between them?

Any 'shortfall' can only be on the GMP pot of the two funds, the other fund didn't promise anything, being the usual 'may go up or down' clause.

You say

Quoting from the letter written to me: £5k was automatically invested in the With Profits Endowment Fund, to secure the Guarenteed Minimum Pension and £6k invested to purchase 'excess benefits'.

The link says

Non GMP (normal pension benefits) - sometimes known as the Excess Over GMP. Any pension benefits that are not linked to providing the GMP part are known as excess pension benefits.

GMP Shortfall - What if S32 Buy Out Returns are low?
If investment returns or bonuses are poor, there may not be enough money in the fund to fund/cover/pay for the increased/adjusted GMP pension.

In these cases, it may mean that you lose some or all of any normal pension benefit you transferred inside the S32 as these may be used to help with any GMP shortfall.

It would appear therefore (have you read all your documents?)

that if the WP policy didn't produce enough to cover the GMP, then the excess could be used to cover it.

Check with your provider.

ffacoffipawb

jamesinnewcastle wrote: »

Hi All


When I left a company over 50 years ago, my accrued pension was transferred as a lump into a pension which had two elements. Quoting from the letter written to me: £5k was automatically invested in the With Profits Endowment Fund, to secure the Guarenteed Minimum Pension and £6k invested to purchase 'excess benefits'.


Q1. What are 'excess benefits'?


Q2. Are the two funds completely seperate?


These are just the first two questions but are pivotal to the ones to follow.





Thanks in anticipation
James

GMP didnt exist 50 years ago, it started in 1978. When did you leave the company?

xylophone

GMP didnt exist 50 years ago, it started in 1978. When did you leave the company?

I think he means "over 30 years ago" not 50. S32 policies became available post 1981.

jamesinnewcastle

Hi


If the non-protected pot is just a 'back-up' for the GMP pot, why not use the power of all the monies put in a single pot to ensure that they get past the post? Any excess not required on maturity for the GMP fund could be put back into a new pot to buy an annuity?


Where is the logic in having the two pots? If the unprotected pot is running just as a higher risk back-up plan then that means that the company isn't so sure of its GMP pot, and it's using my investment to cover its own incompetance/risk.



There is a lot of unanswered logic going on here and it's that that I want to open up. There must be a reason why two pots were started - this action was never explained.



Cheers
James

cloud_dog

The OH has a S32 with Aegon, and originally it had two investment parts (funds); one for the GMP and one for the excess.

We transferred out the excess part in to a SIPP. Aegon have confirmed (as expected) that should there be insufficient growth in the GMP investment they will guarantee the pension.