Section 32 pension.

232607

Just after a bit of of info please.

I have a section 32 that will pay £4566 when I'm 65.
I'm currently 52.

Whilst I consider myself active in my pension planning I've never really given this much thought.
I've always thought the policy value would fall well short of what's needed hence it's simply a case of the pension provider (Aegon) having to take it on the chin when the time comes.

On a recent statement the policy value is £29,222 made up of: -
£20,548 - Reserved fund value.
£50 - Non reserved fund value.
£9,324 - Terminal bonus.

Two things from the statement got me wondering: -

1. It says I can change funds by completing a "Alteration of fund choice form".
I've no idea what fund it's currently in but considering it's unlikely to be able to support the GMP, would it be worth taking a punt and throwing it in a highly volatile fund in the hope that it "takes off" for the next 13 years.
This with the caveat the Aegon will still have to make up any shortfall I assume.

2. Another statement it makes is "Where GMP is payable after age 65 this will increase by 1% for every 7 weeks after this age".
Am I to take it I can defer this pension?
This would possibly interest me as it seems quite generous at round about 7.5% annual increase.

FWIW... I think I'm reasonably covered in other areas.
Will get to the higher rate SP when I finish & currently have a DC with approx £500K as it stands.

Thanks in advance.

xylophone

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

Are you saying that your revalued GMP will be £4566 per annum?


As I understand it Reserved Units will be used in the first instance to provide the GMP. However, if the proceeds of the Reserved Units are not sufficient to provide the GMP then the company will use the non reserved units ( and possibly any bonus)?

With regard to the late retirement increase on the GMP, GMP taken after the GMP age receives late retirement increases of 1/7% per week, plus any missed increases it would have received if it was in payment (the statutory minimum payment increases are zero for pre 88 accrued GMP and RPI up to 3% for post 88 GMP).

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

232607

Thanks Xylophone,

Not quite sure what you mean by revalued GMP of £4566 per annum.
The GMP has always been this figure so I cant see any element of revaluation.
The links confirm what I understood about section 32’s and the increases of RPI up to 3% are applicable to this pension.
I guess what this has taught me is that the mechanics of this pension are driven by legislation rather than what has been set by the provider.

Your info confirms the answer to point 2.
With regards to point 1... I just need to understand if it’s possible to pick a fund that has the potential for large gains over a 13 year period with the understanding that if goes the other way the GMP won’t be effected.

Thanks again.

xylophone

When your occupational pension was transferred into the S32, did you have a statement which showed pre 88 GMP, post 88 GMP and excess?

What were the values at that time?

If you read the link about GMP, you will notice that there are rules about how the GMP must revalue in deferment.


Your pension provider must provide a pension at least as high as your GMP revalued to GMP age.

Is it the case that the figure you have given is your GMP revalued to GMP age? That is to say, Fixed Rate is being used and the insurer has used the information provided at inception to calculate the GMP at age 65?


When the policy was taken out, the hope would have been that the reserved units would have grown enough to fund the GMP with anything in the non reserved used to provide benefits over and above the GMP.

If growth has been unsatisfactory, the provider will use any non reserved funds to support the payment of the GMP.

If this is not enough, the provider will pay only the revalued GMP ( and pay any increases in payment according to the rules) - in effect, the insurer stands the loss.

With regard to RPI, you might wish to check this - you are likely to find that this is now CPI.

if it’s possible to pick a fund that has the potential for large gains over a 13 year period with the understanding that if goes the other way the GMP won’t be effected.

As above, the insurer is committed to paying at least your GMP revalued to GMP age.

Check with the insurer of course but as far as I can see, since this is the case, your pension is affected to the extent that the value of the funds within it is affected by market movements?

If there were vast growth, it might be possible for benefits over and above the GMP to be provided but at all events you cannot lose your right to your GMP?