options for taking benefits from old Clerical Medical GAR pension

hyperhypo

Enquiry on behalf of a family member who has an old CM GAR type scheme with a seemingly complex annuity guarantee.
One option for taking benefits (from the CM scheme booklet) allows for 25% tax free cash to be taken , with the remaining 75% available to buy at an annuity at a guaranteed rate.
The full value is c. £42k which equate in their illustration to a annual flat payment of £3880....just over 9%.
Given this guarantee , is it necessary to purchase such annuity from CM , or can one shop around and still preserve the guarantee.
The person would likely prefer such an approach ...they have been advised that , should they wish to transfer out or liquidise the entire pot , this would require signoff by a qualified advisor, and be charged accordingly.
As some cash is needed as a priority,  the 75% annuity would seem the best compromise.
Has anyone been in this situation with this type of product ? 

xylophone

The person would likely prefer such an approach ...they have been advised that , should they wish to transfer out or liquidise the entire pot , this would require signoff by a qualified advisor, and be charged accordingly.

See  https://www.gov.uk/government/publications/pension-benefits-with-a-guarantee-and-the-advice-requirement/pension-benefits-with-a-guarantee-and-the-advice-requirement

under 

2.1 Circumstances in which advice is required

and 

https://www.pensionsadvisoryservice.org.uk/about-pensions/retirement-choices/buying-an-annuity-how-to-shop-around/guaranteed-annuity-rates

Notepad_Phil

Not an expert on Clerical Medical annuities but I would say that there is next to no chance that you could purchase the annuity from anyone else and still get the guaranteed 9% - the other company is not going to offer 9% just because Clerical Medical are being forced to, and Clerical Medical is not going to want to have to subsidise the payment because the annuity was purchased elsewhere.

If I've got you right then they don't want to take the annuity from Clerical Medical because that would require signoff by a qualified adviser - is your family member 100% sure on this as I would have thought the liquidise pot option was talking about if they took the entire pot as cash rather than the 25% tax-free cash / 75% annuity route they want to use.

Or is it that they have to wait for a specific date as there are restrictions on when the guaranteed rate will hold and they need the money now? If that is the reason then I'm afraid there's no way around the issue if they want to get the 9% - they'll have to wait until the date when the guaranteed rate is active..

hyperhypo

Thanks both...the date at which it becomes live is his birthday at the end of the month. Notepad_Phil... yes i believe you've read that correctly. 

dunstonh

Given this guarantee , is it necessary to purchase such annuity from CM , or can one shop around and still preserve the guarantee.

a) why would you want to shop around and preserve the GAR?  

b) yes it is necessary.

The person would likely prefer such an approach ...they have been advised that , should they wish to transfer out or liquidise the entire pot , this would require signoff by a qualified advisor, and be charged accordingly.

A GAR is a safeguarded benefit and if the fund is over £30,000 it will need an adviser to complete the process and justify why alternatives are better.   It is possible to overrule the adviser but some adviser firms will not transact against their advice (and there are no rules that require them to do so in this area).

Has anyone been in this situation with this type of product ? 

Plenty have.

xylophone

2.1 Circumstances in which advice is required

The following do not constitute transfers or conversions to which the advice requirement applies:

• payment of a pension commencement lump sum in respect of safeguarded benefits (that is, taking one-off tax free cash at the same time as starting to receive a pension)

• purchase of an annuity from another provider, rather than taking up a GAR offered by the member’s existing provider

hyperhypo

Really appreciate all the input on this one, thanks everyone.

I shall pass this on , concluding that a compromise of taking PCLS as cash and using the remaining 75% to purchase an annuity from CM is not likely to require any advisor signoff.

He may be able to ask CM whether they take in account health or other circumstances in calculating the value of the payment, ie if this differs from the flat , non RPI, no health circumstances which features in the recently provided illustration.

dunstonh

He may be able to ask CM whether they take in account health or other circumstances in calculating the value of the payment, ie if this differs from the flat , non RPI, no health circumstances which features in the recently provided illustration.

I haven't seen a rate get above 7% via enhanced annuities for some years.  So, 9% would need him to be seriously ill with a very restricted life expectancy.

hyperhypo

The recent quote from cm was based on a pension of £42k realising £3882 annually flat, which is how I came up with the c. 9%.  The illustration s on the original typed CM letter of late 1980s were based upon assumptions of 8.5 and 13%, but really difficult (for me) to interpret today.  No % value was quoted in recent docs.....Given it amounted to a couple of years contribution s back then, a pretty good deal. I wish I had one!

xylophone

The recent quote from cm was based on a pension of £42k realising £3882 annually flat, which is how I came up with the c. 9%.  The illustration s on the original typed CM letter of late 1980s were based upon assumptions of 8.5 and 13%, 

Do you have sight of the original policy document?

https://www.thisismoney.co.uk/money/pensions/article-1596577/Is-your-annuity-guaranteed-too.html

garmeg

hyperhypo said:

The recent quote from cm was based on a pension of £42k realising £3882 annually flat, which is how I came up with the c. 9%.  The illustration s on the original typed CM letter of late 1980s were based upon assumptions of 8.5 and 13%, but really difficult (for me) to interpret today.  No % value was quoted in recent docs.....Given it amounted to a couple of years contribution s back then, a pretty good deal. I wish I had one!

The 8.5% and 13.5% values are the old low and high growth rates that were used to be used for LAUTRO (as was) projections of pension funds and pensions in the 1980's and 1990's.

Nothing to do with guaranteed annuity rates that may be provided on the policy.