CIS Pension Royal London GAR

Scrotie

I contracted out (SERPS) with CIS about 30 years ago and my policy is now managed by Royal London, it’s currently worth £97k. I have moved several policies to Aegon where I can view performance on a daily basis and switch funds whenever I like, however with Royal London I get one annual statement and there’s only one fund! I have tried moving my old CIS policy to Aegon, but Royal London are saying I HAVE to seek and prove advice, and complete forms (which I cannot as I don’t have a scanner and I’m at home in lockdown)!

What bothers me about CIS/Royal London is all the supposed guarantees/bonuses/Gars are all really vague and wording is littered with descriptions like “your policy at retirement could, might, maybe, should possibly, etc etc”. This policy has increased in value by £1k since the summer (1%), whereas my Aegon investments have returned around 10%. I’m worried if I stay with CIS/Royal London I won’t get any of the vague ‘benefits’ that are mentioned and I’m keen to improve my pension pot as much as possible in the 6 years I have left before retirement. My GAR is currently expressed at £3,850 per annum, or £1,890 without the GAR. What would be your advice?

dunstonh

What bothers me about CIS/Royal London is all the supposed guarantees/bonuses/Gars are all really vague and wording is littered with descriptions like “your policy at retirement could, might, maybe, should possibly, etc etc”

All investments should be saying that.  If you check your Aegon pension, it will say the same.     It is standard across the board as nobody knows what future returns will be.

. I’m worried if I stay with CIS/Royal London I won’t get any of the vague ‘benefits’ that are mentioned 

No different to Aegon.

This policy has increased in value by £1k since the summer (1%), whereas my Aegon investments have returned around 10%.

Is this the current value or the transfer value?
You would expect the current value to not move much as that goes up with annual bonuses only and does not include any final bonus changes.  Only the transfer value includes any changes in the final bonus.

What would be your advice?

You cannot move it without getting an adviser involved.    GARs are normally valuable and its unlikely an adviser would recommend transferring.    CIS GARs are not as good as most but the former protected rights GAR that you have should be indexed.   So, whilst it seems low compared to the more typical 7-15% range you normally see, those are not indexed.   Having part of your income secured with an annually increasing guaranteed for life pension could be valuable.

xylophone

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

Guaranteed Annuity Rates

There is one significant exception to the requirement for a pension transfer specialist, and it is where the advice is on conversions or transfers in respect of pension policies with a guaranteed annuity rate (GAR).

Although GARs are safeguarded benefits, the FCA do not  require these cases to be checked by a pension transfer specialist and as such advice can be provided by an adviser with investment advice permission. This is because an adviser with the investment advice permission, but not the pension transfer and opt out permission, must still prominently highlight the value of the GAR to their client (the firm still needs to hold transfer permissions). The adviser should do this as part of the suitability assessment report for their client.

As of 1 October 2020 the FCA have clarified the rules for Guaranteed Annuity Rates to include a minimum guaranteed income (a contract feature most often seen in Retirement Annuity Contracts (RACs)).

This easement for minimum guaranteed income excludes fixed or guaranteed benefits in an individual pension contract that replaced similar safeguarded benefits under a defined benefits pension scheme. It also excludes entitlements to a lifetime income paying a GMP that results from contracting out of the State Earnings Related Pension Scheme and a defined benefit minimum that accrues or may accrue at the same time as money purchase benefits under a pension arrangement. As there is more complexity in assessing and advising on these arrangements, so advice must be given (or checked) by a PTS and include a TVC and APTA.

Scrotie

Hi – thanks so much for the replies, I’m a bit of a numpty and don’t understand much of the jargon. With regard to the ‘ifs buts and maybe’s’, I wasn’t referring to the value as I absolutely get that the value could fluctuate. What I mean is:

Annual bonuses ‘may’ be added each year

A final bonus ‘may’ also be added

Where additional situations (former protected rights) they currently offer the GAR, they may stop doing so in future.

The value is the transfer value (pre ’97 = £78k) and post ’97 = £19k.

Regarding the former protected rights element that doesn’t mention ‘indexed’ (and again I don’t understand) is:

Retirement age	Pre '97	Post '97
60-64	40	28
65+	50	35

dunstonh

Annual bonuses ‘may’ be added each year

Correct.  They may be added but could be zero.(mainly in a negative year)

A final bonus ‘may’ also be added

Correct.  The final bonus accrues as you go along.   It goes up and down with the markets.  So, there is the possibility there may be no final bonus if markets collapse.

Now read your Aegon illustrations and you will see just as much use of "could" or "may".

Where additional situations (former protected rights) they currently offer the GAR, they may stop doing so in future.

Correct.  They no longer offer them for new business and RL have allowed pension holders on some of their other ranges to buy themselves out of the GAR by getting an increased bonus added to the pension.

Regarding the former protected rights element that doesn’t mention ‘indexed’ (and again I don’t understand) is:

Former protected rights had to have indexation on the annuity and 50% spouse included.

Scrotie

I've just received my latest earth-shattering statement. My policy has a transfer value of £100k, with a GAR of £380. The annual bonus is £92 and the annual charges of this amazing investment is £740!?? Hello, am I missing something here, and I can't transfer this to a proper bona fide company without financial advice? 

Scrotie

A GAR OF £3880 even...

dunstonh

The annual bonus is £92 and the annual charges of this amazing investment is £740!?? 

The annual bonus would be low.   Since the early 2000s the majority of the returns falls on the final/terminal bonus rather than the annual.

Hello, am I missing something here, and I can't transfer this to a proper bona fide company without financial advice? 

Another way of looking at it (with devils advocate mode on) is that you bought this product in the first place using a CIS sales rep.  So, you clearly had no understanding of what was good, bad or indifferent (you would never have bought it if you did).  So, are you really in a position to say what is best for you? (devils advocate mode off)

The vast majority of GARs are close or into double digits.   The legislation doesn't differentiate between small GARs and high GARs.  It wouldn't be practical to either.   And a GAR of around 3.9% with annual indexation could be very attractive in the coming years.

xylophone

Is the GAR indexed?

dunstonh

xylophone said:

Is the GAR indexed?

The old CIS plans had an indexed rate on the protected rights segment and a level rate (higher) on the non protected rights.  The amounts varied depending on the year it was bought.  The protected rights GAR also had 50% spouse and a 5 year guarantee.

Scrotie

Hi - all the documentation I've received doesn't mention index linked.