Do I have other options with my section 32 policy?

balbs

My smallest pension pot is a section 32 policy with a value of about £90K.  As Im coming up to NRD the provider has listed four options, starting with taking the whole amount as a lump sum, two 'intermediate' positions ie an annual pension of about £1800 plus tax free cash, the third a slight variant on the second one, and the fourth using all the value for an annual pension of about £2.5K.  The part I am slightly confused about is that they say I could ask other providers to see if they offered better value - so my question is would any provider be interested in looking at this? and in any case as the value is over £30K and there is a GMP amount would I be expected to still take professional advice?  As I know this is expensive I'm wondering whether there is any point in even considering this, and I might as well just consider only the options that the provider has laid out.  (The GMP figure is not inflation proofed but does have a half pension for the spouse in the event of my death),

Marcon

You only need to take advice where a pension has a transfer value of over £30K and you are moving to a scheme which offers 'flexible access' to your pension. If you are simply buying an annuity, you don't need to take advice.

It is now a requirement for pension providers to point out to you that you might get a better deal if you shop around for your annuity rather than buying it from the provider who currently has your pension savings.

tichtich

Is the £2.5K annuity they're offering fixed, escalating or index-linked? It seems too low for fixed.

TVAS

The reason why you can take the whole fund as TFC is because a Section 32 Buy Out Bond (established in the Finance Act 1981), is based on salary and service and Inland Revenue Maxima.
They are asking you to see if you can get a better staring pension from another provider because they might not give you the best rate and this is a competitive market.

Transferring our of Section 32 or Personal Pension

If you wish to transfer out of a Section 32 scheme as you are giving a guaranteed income for life the process will require additional scrutiny and rightfully so. In line with UK pension legislation, you will be required to utilise a UK FCA (Financial Conduct Authority) regulated IFA if the value is over £30,000. They will analyse the offer benefits being offered whilst considering your own personal position and recommend whether to transfer or not.  For a personal pension, you do not require this however you should always take advice from a regulated adviser when considering transferring your pension.

The advise route will cost you money i.e. an amount from your fund.

If it was me I would take the whole amount as a lump sum. Have some emergency funds or top them up, invest in a stocks an shares ISA or continue funding into pensions as you have triggered the MPAA so you can still contribute £10,000 to a pension.

You have other pensions so you will pay income tax on those as well as when you get your state pension.

  

TVAS

You might have recyling issues if you use any of the lump sum funds for further contributions https://adviser.royallondon.com/technical-central/pensions/contributions-and-tax-relief/recycling-of-tax-free-cash/

xylophone

As Im coming up to NRD the provider has listed four options, starting with taking the whole amount as a lump sum,

Your policy offers higher than 25% tax free lump sum?

https://www.pruadviser.co.uk/knowledge-literature/knowledge-library/section-32/

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

TVAS

Xylophone I have already explained why he can take the whole fund as tax free cash.

Marcon

TVAS said:

Xylophone I have already explained why he can take the whole fund as tax free cash.

Yet again you are wrong. Instead of berating other people for giving correct answers, perhaps you could check your own - or ask OP for more information to find out if the conclusion you've jumped to might be right. 

Tax-free cash is similar to that of any other registered pension scheme (see our article Pension Commencement Lump Sum Tax Free Cash) unless the individual was entitled to a larger lump sum under their previous scheme as at 5 April 2006.

If this is the case, the tax-free cash would be the value of the lump sum that could have been paid had the individual become entitled to it on 5 April 2006. This is based on an assumption that the member is in good health and no reduction for early payment applies. This figure is subject to the maximum tax-free cash allowable under HMRC rules before 6 April 2006.

Source: https://www.pruadviser.co.uk/knowledge-literature/knowledge-library/section-32/#section-5

Marcon

TVAS said:

The reason why you can take the whole fund as TFC is because a Section 32 Buy Out Bond (established in the Finance Act 1981), is based on salary and service and Inland Revenue Maxima.
They are asking you to see if you can get a better staring pension from another provider because they might not give you the best rate and this is a competitive market.

Transferring our of Section 32 or Personal Pension

If you wish to transfer out of a Section 32 scheme as you are giving a guaranteed income for life the process will require additional scrutiny and rightfully so. In line with UK pension legislation, you will be required to utilise a UK FCA (Financial Conduct Authority) regulated IFA if the value is over £30,000. They will analyse the offer benefits being offered whilst considering your own personal position and recommend whether to transfer or not.  For a personal pension, you do not require this however you should always take advice from a regulated adviser when considering transferring your pension.

The advise route will cost you money i.e. an amount from your fund.

If it was me I would take the whole amount as a lump sum. Have some emergency funds or top them up, invest in a stocks an shares ISA or continue funding into pensions as you have triggered the MPAA so you can still contribute £10,000 to a pension.

You have other pensions so you will pay income tax on those as well as when you get your state pension.

  

More errors here, sadly. As I've already pointed out above, using the proceeds of the S32 to buy an annuity means there is no need for advice - it isn't a 'transfer'.

The MPAA is £4,000, not £10,000. It is not triggered if OP buys an annuity. It is only triggered when someone 'flexibly accesses' their DC pension.

balbs

TVAS surely you are wrong here about being able to take the whole amount as tax free cash (that would be nice) because of the GMP that has to be accounted for first? The link that Xylophone gives at https://www.financialadvice.net/s32_buy_out_plan/zone/1288 says this as well.

I think the logic is a. You need to take professional advice if you are giving up rights in the GMP (and the total fund is over 30K) but b. You dont have to take advice if the total amount is being used to buy an annuity with another provider, as this isn't regarded as a transfer of the funds (which you could invest willy nilly with whoever you liked) but is straight away buying a fixed product which is going to be more than the amount necessary to generate the GMP figure that was 'promised' (because the provider knows what would generate that GMP figure) and there are 'surplus' funds on top of that.  Does that sound logical?

DairyQueen

Thankyou @Marcon. Just one of a recent stream of confidently, misinformed postings from this new member.

@TVAS: a little humility goes a long way on this forum. Certain forum members are experts in their area and @xylophone is amongst that select group. He is far too polite to blow his own trumpet but has forgotten more than you will ever know about SP/GMP/S32/etc. You would have known this if you hadn't jumped into the forum with two (left) feet.

It would be helpful if you could edit your (many) incorrect posts for the benefit of those undertaking future searches.

If you really wish to help then please limit your responses to the areas where you are on firm ground. Unfortunately, you don't know as much as you think you do so will benefit from digesting the posts of those who are more expert than you rather than making ill-informed attempts to correct them.