Section 32 pension - what options will I have, if any?

tempus_fugit

Just been reading another thread about s32 "buy out" pensions, and as I don't want to hijack that thread I have started a new one.

In 1995 I was made redundant from a company with which I had a company pension, retirement age of 60. After I left I was advised to transfer out of the company pension into a private pension (no mention was made of s32 or "buy outs" etc). Everything was explained to me at the time, including, I assume, the fact that the retirement age was 60 but that, because I am male, if the pension does not accrue enough to pay the GMP (7% uplift P/A if I remember correctly) at age 60 then I may have to wait until age 65, get paid the GMP but may also lose put on any lump sum payment. Of course this was all glossed over with the fact there would be no way that the pension would not be able to fund the GMP plus plenty for a lump sum and all at age 60.

Of course now I have passed age 60 and the pension cannot fund the GMP, so I have to wait until 65, which is just over 3 years away yet, and it looks like the pension will not ever fund the GMP at age 65 (around £5,300 p/a). It also says that if this is the case they may not allow me to transfer it out either. So does this mean I am stuck with it, with no options at all to "shop around" when I reach age 65? It all seems very unfair and purely because I am male (women got theirs at age 60 no questions asked).

I understand that it has some guaranteed benefits, such as 50% widow's pension (which is pretty good) and 3% indexing (although as the GMP is split pretty much 50/50 before and after 1988 it's effectively only 1.5%. Whilst I'm happy for anything that would go to my wife if I die she is much better placed than I am as far as pensions go. So, if  get to age 65 and the pension cannot fully fund the GMP, as looks likely, am I stuck having to take that or do I have any options at all to shop around or whatever?

Thanks

xylophone

The pension provider cannot shuffle off the responsibility of having to pay you at least your revalued GMP at GMP age (65 for a male/60 for a female) regardless of whether the fund has grown enough to fund the GMP.


https://connect.avivab2b.co.uk/adviser/articles/tech-centre/pensions-planning/pre-retirement-accumulation/section-32-arrangements-GMPs-and-transferring/

will be worth a read.

With regard to 3% indexing, that is up to 3% on post 88 GMP not a fixed 3% - you would only get 3% if the CPI were 3%.



Have you obtained a State Pension Forecast?

https://www.gov.uk/check-state-pension

What exactly does it say ?

What is shown as the COPE?

How many years NI did you have at 6/4/16?

Marcon

tempus_fugit said:

Of course now I have passed age 60 and the pension cannot fund the GMP, so I have to wait until 65, which is just over 3 years away yet, and it looks like the pension will not ever fund the GMP at age 65 (around £5,300 p/a). It also says that if this is the case they may not allow me to transfer it out either. So does this mean I am stuck with it, with no options at all to "shop around" when I reach age 65? It all seems very unfair and purely because I am male (women got theirs at age 60 no questions asked).

Things always seem unfair if you believe they haven't worked in your favour. In this case, the S32 contract has done its job and ensured you will receive a pension at 65 at least equal to your GMP, despite the fact the fund has performed too poorly to fund such a pension. 'Shopping around' is very unlikely to help you - you are unlikely to be able to buy a bigger pension elsewhere with the funds in your S32 policy, even if the fund has grown sufficiently (i.e. it covers the GMP) for you to be given the option to transfer.

tempus_fugit

Thanks for your replies. Yes, I think what you say, Marcon, is what I was thinking. It seems unfair not to have the options but I suppose the guarantees are worth having and difficult to match on the open market.

Xylophone, yes I get a state pension forecast every year. I can’t remember the exact figures without looking them out but I have over 35 years of NI contributions but am slightly short of the maximum pension due to the COPE deduction. I can look out the exact figures if you think it would be useful. I think I would only need to contribute for one year to get up to the maximum amount.

Reading the other thread it was interesting to hear that the OP in that thread was getting what seemed to be wildly better estimates (quotes?) of their pension if they transferred out. That certainly hasn’t been my experience although there have been some that might have tempted me if I had the freedom to do so.

tempus_fugit

Just checked the state pension info. State pension forecast as of now is sitting at £172.33, COPE amount is £41.32. I have 39 full years of NI contributions, with about half a dozen non-full years overall. I’m not working at the moment so am not currently making NI contributions.

Albermarle

tempus_fugit said:

Just checked the state pension info. State pension forecast as of now is sitting at £172.33, COPE amount is £41.32. I have 39 full years of NI contributions, with about half a dozen non-full years overall. I’m not working at the moment so am not currently making NI contributions.

I think you can ignore the COPE figure .
It would be worth buying extra NI years to get to the full state pension. It is very good value for money . Around £850? buys £5 a week extra pension , so a payback of less than 4 years .
In the open market £850 would pay you about 50p a week .

tempus_fugit

Thanks Albermarle. Yes, that is an option I am considering in order to maximise my options, such as they are.

If I choose to do this, should I pay for one year or two, bearing in mind that I wouldn’t get the full benefit from both years as I can’t get above the current maximum of £179.xx?

xylophone

I think you can ignore the COPE figure .

I asked about it and the years NI at 6/4/16 so as to consider the calculations for the OP's SP.

He looks to have had  at least 35 years at that point and if so

Old Rules

Full Basic of £119.30 +  (Additional State Pension - Deduction for Contracting Out).

New Rules

Full NSP of £155.65 - COPE.

His starting amount was the higher of the two so clearly given by the Old Rules Calculation.

He would have improved his position by contributions from 6/4/16 but is still a little short of full NSP.

As you say, he should consider voluntary contributions.   

https://www.moneyhelper.org.uk/en/pensions-and-retirement/state-pension/voluntary-national-insurance-contributions-and-the-state-pension

xylophone

Reading the other thread it was interesting to hear that the OP in that thread was getting what seemed to be wildly better estimates (quotes?) of their pension if they transferred out. 

I'm not wholly sure that there was a like for like comparison - his was a somewhat complicated situation - apart from that, it did seem that his policy/policies  covered  his GMP?

xylophone

As a matter of interest, what made you choose to transfer into a S32 rather than become a deferred member of the scheme?

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

Is your old scheme still going strong?

tempus_fugit

xylophone said:

As a matter of interest, what made you choose to transfer into a S32 rather than become a deferred member of the scheme?

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

Is your old scheme still going strong?

To be honest I haven't a clue. It was nearly 30 years ago and it was arranged by a former colleague in the insurance company that I worked for. I think the old scheme is still going. It seems bad to say this now that I have a better understanding of pensions, but at the time I think I was persuaded that this was the way to go, and I don't think I understood that I could probably have stayed in the company scheme. The colleague had worked in the Life insurance department and dealt with pensions, but was freelance by the time I transferred the pension, and I trusted him that this was the thing to do.