Buy out plan 25% tax free

Toppervte33h

When I was made redundant from a multinational company in the early 90's I was given the option to transfer my pension pot to one of three companies. I went with the company that was offering the best annual pension of £14K The pot was only a small amount but a lot of money to someone like myself who has never earned big money. A year or so later I was sent a letter by the pensions company to say that the most they would now pay out on my pension was £1,200 per annum.

I was of course concerned and disappointed however about a year later I was contacted by the A.O.N. who said they thought I had been hard done by. Having sent all the documentation to them I was eventually awarded some compensation. The pensions company involved refused to add this compensation to my pot and insisted on a 2nd pension being taken out. This was done and after about another year the A.O.N. contacted me and said that a small mistake in their forecast program meant that I had been short changed by about £1000. The pensions company refused to allow that money or indeed any money to be paid into either of those pensions so the £1000 was sent to me as a cheque which at the time was useful as our car was off the road and we had two young children.

I have watched the growth of the 'pot' but it only achieved £70K. I am an inbetweeny born in June 1954 so whilst some of my school mates have received their state pensions already I have to wait until April 2020. Through ill health I have not worked for five years and my wife and I have been living off her early retirement pension plus her 25% tax free lump sum which is now depleted. I recently filled in forms for illustrations from my pensions provider and this week received only one option. No tax free lump sum and a five year GMP of £3245 and 50% of that for my wife if I die. There is an option to buy an annuity with another provider but again that does not include any tax free lump sum. Contacting them bore no fruit, that is my one and only option which I do not want.

Simple maths told me that they would be paying me back £16K in that 5 years so what was happening to the rest of the pot and why could I not have my 25% tax free allowance from it? Yesterday I was verbally informed this was actually a lifetime pension yet the illustration definitely states it is five years GMP. Having been shafted once by this company, Apart from the ombudsman I really do not know which way to approach getting some of my money which we need just to get by until my wife and myself are elligible for our state pensions.

Pension_Geek

There is often a 5 year guarantee, meaning that if you passed within the first 5 years, the pension would be paid in full for that period, then reduce (by 50% in this instance).

That's not to be confused with GMP. It is very likely this is a lifetime annuity you are being offered.

Toppervte33h

I would have expected an illustration to at least mention that somewhere, also why would I not be allowed to take a cash sum, surely that is my choice to take or not? Why change the regulations to allow it then exclude certain people?

JoeCrystal

Any chance to put your post in paragraphs? Your post is making it difficult to make sense of it.

dunstonh

I would have expected an illustration to at least mention that somewhere

They usually do. However, a 5 year guarantee period is default.

, also why would I not be allowed to take a cash sum, surely that is my choice to take or not?

No. it is not your choice. If the fund allocated to the GMP is insufficient to meet the GMP then firstly, the TFC is reduced and if it is still not enough then the insurer has to meet the difference from their own pocket.

Why change the regulations to allow it then exclude certain people?

The regulations havent changed. If you are referencing the amendments in 2015, then they just extended options that already existed. And did not apply to every pension type.

There are some things you can consider as alternatives but you would need to use an adviser and giving up the GMP to take 25% TFC has consequences.

xylophone

You have a S32 buy out bond with GMP.

See

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

Toppervte33h

Yes thanks for the replies I think I understand what is going on here now, although I can not say I agree with their conclusions or their ethics. It appears that the fund has performed badly and is deemed by the pension company to not cover the GMP and they have to make up the financial difference which is why why they are not offering any tax free lump sum. Well it has obviously been managed extremely badly as they are only offering me a 1/4 of the pension I was promised 27 years ago. I still think that there should be some alternatives offered, even for a shorter term rather than life, all I want is some money to keep us afloat for 12 months. I will just have to make sure I live to 100.:p

dunstonh

It appears that the fund has performed badly

Not necessarily. It is more often a case that the assumptions they used to meet the GMP were too high. Investment returns over the last 30 years have been lower than the previous. Mainly due to the reduction in inflation. The net returns after inflation are actually broadly similar.

Well it has obviously been managed extremely badly as they are only offering me a 1/4 of the pension I was promised 27 years ago.

No it hasn't 30 years ago, we were delivering maturities that quadrupled the amount invested. Then it fell to treble then it fell to double. The people who got double instead of quadruple have not been badly invested. In fact they are better off because of the things that happened that caused inflation to fall.

Toppervte33h

Well thanks for the comments, it still does not explain why the company adamantly refuse to offer a cash lump sum up front, which is what my personal requirement is and something that appears to be the norm these days. There is even a dedicated website rates.annuityadvicecentre.co.uk/live-rates to suck people in to moving to a different company who appear to offer up to a 25% tax free amounts and a pension although payment period at this stage is undetermined. Why are the big companies reluctant to be flexible?

dunstonh

it still does not explain why the company adamantly refuse to offer a cash lump sum up front,

Because the fund is there to meet the GMP. If the fund was sufficient to meet the GMP, then there would be TFC offered.

is and something that appears to be the norm these days.

it has been the norm since 1988 on personal pensions. However, you dont have a personal pension.

here is even a dedicated website rates.annuityadvicecentre.co.uk/live-rates to suck people in to moving to a different company who appear to offer up to a 25% tax free amounts and a pension although payment period at this stage is undetermined.

As can every single local IFA. In fact, you would probably find non-advised internet solutions would not do it (given the GMP). Plus, on a fund of your size, a non-advised annuity would likely be more expensive than advised (commission higher than the fee).

Why are the big companies reluctant to be flexible?

GMP is defined by law. Not contracts.

xylophone

Well thanks for the comments, it still does not explain why the company adamantly refuse to offer a cash lump sum up front,

Have you read the information in the link which explains this particular type of policy?