Guaranteed Minimum Pension, GAR/safeguarded benefits - bit of a con?

Dale72

Is that you then? Its not me, as I'm sure I have mentioned a time or three I worked in the industry for more than a little while, so while I wouldn't use the word evil, I do know from the inside some of the things that went on.

xylophone

GARs are significant because those do not require advice from a pension transfer specialist, a normal adviser with investment permissions will suffice.
This doesn't help with GMP.

For more information on this see the comprehensive explanation in

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

Tommohawk

Thanks for those comments -  very helpful.

Re criticising the pensions industry: I don't doubt there are rogues and saints in that profession much as there will be in any other - I'm not interested in making any judgement on that score. What I am interested is clarity on the question of "guarantees".

Re that link to Pruadviser: it's likely there is some helpful information there but I'm afraid most of it over my head. 

Re GMP vs GAR: I can see that I've muddled those terms. It's GMP that matters here, and it seems the key component of this is a commitment to a 3% annual increase in payments.

SO.. my question remains: what is the value in a GMP wherein a commitment to increase the annuity payout by 3% per annum is offset by simply reducing the rate actually paid?

xylophone

this is a commitment to a 3% annual increase in payments.

A commitment to increase the  post 6/4/88 GMP portion  in payment by up to 3% CPI?

wherein a commitment to increase the annuity payout by 3% per annum is offset by simply reducing the rate actually paid?

I don't follow this.

because of the nature of the policy and the legislation that relates to it, the provider must pay a pension of at least the GMP (revalued to GMP age (60 F/65 M), and any  post 6/4/88 portion of that GMP must be increased once in payment by up to 3% CPI (formerly RPI).

The GMP increase order will be set according to the rate of inflation in September and the increase will be paid from the following April.

What exactly have you been offered as an annual pension?

Tommohawk

The numbers are complicated because Reassure only handle the GMP element and L and G do the other 2 elements, although both parties seem to  provide "illustrations" of the other parties elements. I have a quote from Reassure dated January and a quote given a couple of days back from L and G for the other elements. But these figures wont be accurate because although  we scheduled this conversation 2 weeks back, L and G didn't bother to get an update on the pot value beforehand. This covers about 50 pages together. 

The only reliable current figures I can extrapolate are. L and G tell me that based on a pot of £103608 I would get a TFLS of £25902. Also that after the GMP is funded, the remainder is £44453. This implies that £59155 is required to fund the GMP element. The GMP payout would be 1513.56 pa.

They also tell me that after the TFLS is deducted from that remainder, there is £18551 to fund the Section 92 element (~£10,000) and the nonprotected element (~£8000) TBH those elements are small and not really the focus of my query. They would apparently prove 199.68 and 284.28 annually respectively.

Now if I look for an annuity quote to compare with the GMP on offer, for £59155 I can get £1651 pa (same basis exacly with 3% annual increase, 50%to spouse, 5 yr guarantee.)

So how can £1513 pa be better than £1651 pa?

Moreover, if you add the quoted GMP + Section 92 + unprotected elements together,  we arrive at 1513 + 199+ 284 = 1996 pa

Whereas if I look for a quote for the total pot value of 103608, again with the same terms 3% annual increase etc, I get a quote of £2840 pa. Presumably the return rate is better for a bigger pot.

So the guaranteed annuities I'm being offered for the total pot are ~£900 pa less than I would get on the open market - with the same terms.

Should I be happy with this?

xylophone

There have been a number of posts concerning S32 policies but I don't recall ever having seen one with this strange mix of insurers.

With regard to the GMP, as has been discussed previously, the insurer must pay a pension  of at least the GMP and  annually increase the post 88 GMP in payment by up to 3% CPI. *****


Reassure has calculated the GMP revalued to GMP age and advised the pension payable.

You appear to be saying that you have used their calculation for the GMP and obtained an annuity quote which not only offers a joint annuity in excess of the GMP pension offered but also guarantees a straight 3% annual increase?

This does seem rather strange.

As for the elements covered by L&G,  would you be receiving a separate pension?

This situation seems so complicated that you might be well advised to take professional advice as to the best route in your circumstances.

https://adviserbook.co.uk/

You would tick "confirmed independent" and "pension transfer" when the menu comes up.

**** edited to clarify

Tommohawk

With regard to the GMP, as has been discussed previously, the insurer must pay a pension  of at least the GMP and  annually increase the pension in payment by up to 3% CPI.

You say they must pay "at least the GMP," but how is the amount of GMP defined?

You appear to be saying that you have used their calculation for the GMP and obtained an annuity quote which not only offers a joint annuity in excess of the GMP pension offered but also guarantees a straight 3% annual increase?

This does seem rather strange.

Absolutely. I'm not about to post my DOB etc so you can check for yourself, but the sums show that 59155 is used to fund the GMP and that same sum will get me a better annuity on the open market with the same terms including 3% pa annual increase.

The greater concern is that the fragmentation of the total pot has in itself reduced the annuity substantially. 

I have paid 2 IFAs in the past and I'm not really up for paying again just to get what's due to me.

To make matters much worse, trying to have any kind of sensible communication with Reassure is impossible. I have made a complaint about this and have now been waiting 6 weeks for a response. 

xylophone

You say they must pay "at least the GMP," but how is the amount of GMP defined?

When a person became an "early leaver" from a Contracted Out  scheme, the value of his benefits in the scheme was calculated -  the leaver was usually provided with a statement of deferred benefits showing (where appropriate) his pre 88 GMP, post 88 GMP and excess at date of leaving the scheme.

More often than not, the benefits would remain deferred within the scheme and there were certain regulations as to how those benefits would revalue in deferment.

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

https://www.barnett-waddingham.co.uk/comment-insight/blog/revaluation-for-early-leavers/

However, as explained here

https://www.financialadvice.net/s32_buy_out_plan/zone/1288#:~:text=Section 32 of the Finance,as a S32 Buy Out.

 it became possible to transfer these benefits into an individual policy provided by an insurer, a S32 buyout policy which could protect GMP rights.

Once within the S32, the GMP calculated at the inception of the policy had to be revalued annually up to GMP age by one of the methods set out in the links above.

The insurer was required to pay a pension at least equivalent to that revalued GMP at GMP age and (in respect of post 88 GMP) to index link in payment as the law required (up to 3% CPI, formerly RPI).

I have paid 2 IFAs in the past and I'm not really up for paying again just to get what's due to me.

But if you want to transfer out, (do you?) you are going to need to show that you have obtained  advice where and if appropriate.

Tommohawk

OK thats very helpful to explain how GMP is arrived at.

When I spoke to IFAs previously, nobody was aware that this policy would offer such a poor outcome so the issue wasn't discussed.

 Do I want to transfer out? And get £2840 pa rather than £1996? Thats a no brainer isnt it?

xylophone

And get £2840 pa rather than £1996? 

But I think you'd need to be sure that such would be the outcome.

And given the somewhat complex nature of your arrangement, I don't see how you will arrive at an answer without consulting somebody with the expertise to advise.

And if, under the law, advice is required before a transfer out would be permitted, you'll need to bite on the bullet, find an adviser and pay his fees.

I hope you'll let us know the outcome.