Scottish Widows Guarantied annuity rate

stulaunch

I have a pension with Scottish widows from the 80's. I have around £40,000 in now. 
I called to get a current valuation and when I asked, they told me there was a GAR on it. Now I presume should have asked what % that was? I will tomorrow. But since I came off phone, I had a search and have seen these gar's can be up to 10% of the pension pot. 
I was told my retirement date was 2023, when I'm 60. And I will only get GAR on that date, so I lose it if I extend. 
I will carry on working, So I don't really know what to do with it?

I have started a Sipp in the last couple of years, with the intention to put as much as I can in for as long as I can keep working. I'm self employed floorlayer so can't practically see me being able to do this job until state pension age, another 10 yrs.

I was thinking about transferring all my pensions into Sipp and drawing down when I have to. But now I don't know what to do if there's a good gar on this.
If I were to take it at 60, I'm thinking the tax situation will take away any GAR benifits?

Are you usually able to pay avc's into these guaranteed pensions to get more benefit from GAR? If so, maybe that's an option until maturity?

green_man

Until you know the GAR rate it’s difficult to know for certain. Over 10% I don’t think is very common 6-8 % is more typical I think.  However if you were to buy an annuity on the open market at 60 you would see typically under 3% and less with inflation protection, spouse pension etc. So 6% would be probably double what you could get elsewhere.  Even allowing for tax it’s likely taking the annuity at any GAR of 6% + would be your best outcome, but clearly you need to do some sums, and find out exactly what options you have on taking the GAR.

dunstonh

 they told me there was a GAR on it. Now I presume should have asked what % that was? I will tomorrow.

Not just the GAR rate but the terms it is on.   And if the terms can be changed and have the GAR rate applied to those on a pro-rata basis.  e.g. if the GAR is on single life, level with a 5 year guarantee, monthly in arrears, would they, for example, apply the GAR to 100% spouse and adjust the annuity rate from the GAR or their standard rate.    

 But since I came off phone, I had a search and have seen these gar's can be up to 10% of the pension pot. 

Not just 10%.   They can be well into the teens. 

I was told my retirement date was 2023, when I'm 60. And I will only get GAR on that date, so I lose it if I extend. 

Most plans tier their GARs do they adjust with age.  Although a small number do only have a fixed age to do it and a limited window to instruct it.

I was thinking about transferring all my pensions into Sipp and drawing down when I have to. But now I don't know what to do if there's a good gar on this.

The key will be the figures, once known.

If I were to take it at 60, I'm thinking the tax situation will take away any GAR benifits?

in the short term yes but not in the long term.  Plus, if you are a limited company, you could reduce the money you take from the limited company and place that in a pension but use the annuity to replace the reduced income draw.   You cannot do that if you are self employed on a sole trader/partnership basis though.

Are you usually able to pay avc's into these guaranteed pensions to get more benefit from GAR?

An AVC is a product.    So, that would not apply to you.       Most plans with GARs do not allow increments.  Either because they are either closed for business or are section 226 retirement annuity contracts which ceased to be available from 1988.  A very small number will allow reactivation of paid up plans though.

ukpoker

I have a section 226 policy from Norwich Union / Aviva taken out in Feb 1988.
This type of policy ceased to exist from July 1st 1988 so I was lucky to get it and, by the sound of it so were you.
My policy is also paying out on my 60th birthday in October of this year at a rate of 9.3% guaranteed on about £120,000 in total (exact value still to be determined) This is to be paid monthly, in advance, for a guaranteed period of 5 years. I can get a slightly higher rate of 10.6% however this is for if I wanted the policy to pay out yearly - in arrears - which I don't.
Whatever you do DO NOT cash this policy in prior to your retirement date in 2023 as, if you do, you'll lose this super valuable benefit of the 9% - 10% 'guaranteed' rate of return and you'll be left with the more boring 4% 'general' annuity rate.

stulaunch

Thanks for reply dunstonh 

The GAR rate is 9.804%

It is a fixed date, 60 yrs old

They are sending me a copy of terms, so I will have a good read when they come.

I am only sole trader at the minute, but may go Limited company at some point, so I will look into that.

If I do take an annuity when I'm 60, and carry on working, would paying the annuity amount into my Sipp be a good way of offsetting the amount of income tax payable? 

jamesd

Yes, pension contributions are a good approach for that.

It's also worth knowing that since you've passed age 55 you can take 25% of a pension pot without that affecting your ability to make future pension contributions. Take any from the remaining 75% and you're restricted to 4k a year. What this means is that it's probably a good idea to move savings into a pension so you can get the tax gain.