GAR dilemma

simonr1100gs

Good morning

I currently have a Royal London with profits pension (former Coop) with a GAR attached. The GAR is not the best and will pay around 8.0%

I have just turned 50 and reviewing this pension, I am a little disappointed that the fund seems to be stagnating. It is not possible to increase the fund or take the pension any earlier than 65 (the date I chose at 19 years old - thinking I would never retire, loving my job and still do) There is not a lot of flexibility, I appreciate Annuities provide you with money for life.

The transfer fund at present is worth around £120k. If I keep the policy until I retire I would get around £9k p.a., but I have noticed over the last couple of years that this figure is slowly diminishing - I assume it is not in their interest for it to perform greatly and I may be incorrect but there is no guarantee on them paying out on a GAR anyway at the end of the term as there is no legal legislation by the financial authorities, therefore I sleep walk into a 4k retirement pot

My question is to transfer or not?

If I transferred the fund and continued to make the same contribution until I retire I could take out an annuity under a new policy and get around the same if my fund grows at around 6% or I could provide myself with greater flexibility, ie pay in larger amounts of money to help increase my pot, consolidate another two very small pensions, take out a tax free lump sum, semi retire / retire earlier, look for a better fund for my dependents (should I die) and also use draw down to get a larger amount back each year for the 15 / 20 years I would have left to live.

I would just like to get a steer on this before I go to see and IFA, the last one I saw around 3 years ago when I wanted to take out another pension was not confident to give advise on the GAR fund (saying its not the best but its okay and was unsure if I should transfer to the pension he was trying to set up for me at the time) he did have the full fact presented to him from Royal London.

I am self employed, will have other means for my retirement and do not envisage a lavish lifestyle but will easily get to the amount suggested by Which as a comfortable retirement, I just don't like to see this fund under-performing.

Thanks in advance for any advise.

Simon

dunstonh

I currently have a Royal London with profits pension (former Coop) with a GAR attached. The GAR is not the best and will pay around 8.0%

8% at what age?   Many GARs change the amount depending on the age.  8% at age 55 is much better than 8% at 75 for example.
What are the terms of the GAR (single,  50% spouse, 100% spouse, level, indexed etc)

I have just turned 50 and reviewing this pension, I am a little disappointed that the fund seems to be stagnating.

It will be invested very cautiously with the primary objective of covering the liability.

 It is not possible to increase the fund or take the pension any earlier than 65 (the date I chose at 19 years old 

Is that because it is a section 32 buy out bond?   That seems unlikely for a 19-year-old.  As you are aged 50 now and took it out at 19, that would indicate that it is probably a section 226 retirement annuity contract.   In which case, you should be able to take it from 55 onwards as their commencement ages are not hardwired and the 2006 rules changes allowed them to match personal pension age ranges.

The transfer fund at present is worth around £120k. If I keep the policy until I retire I would get around £9k p.a., but I have noticed over the last couple of years that this figure is slowly diminishing

When you say diminishing, are you referring to the fund value or the projected income?     
If it is in the projections then they would be diminishing but not because of the value.    Projections are synthetic calculations based on a range of assumptions.  Those assumptions have got increasingly pessimistic over the years. Plus, they factor inflation at 2.0% currently to show the figures in today's terms.   A decade ago, they were shown in future money terms.
So, its more likely you are seeing the effect of assumption changes rather than fund value.

- I assume it is not in their interest for it to perform greatly and I may be incorrect but there is no guarantee on them paying out on a GAR anyway at the end of the term as there is no legal legislation by the financial authorities, therefore I sleep walk into a 4k retirement pot

GARs are a contractual event and only the solvency of the insurance company can prevent the GAR being paid.    Over 20 years ago, the regulator increased the solvency requirements on insurers to ensure that they can cover their liabilities.     You are certainly not sleeping walking into a 4k pot.

My question is to transfer or not?

The main question is finding an IFA that would agree to transfer a pension that has an 8% GAR on it.

If I transferred the fund and continued to make the same contribution until I retire I could take out an annuity under a new policy and get around the same if my fund grows at around 6% or I could provide myself with greater flexibility, ie pay in larger amounts of money to help increase my pot, consolidate another two very small pensions, take out a tax free lump sum, semi retire / retire earlier, look for a better fund for my dependents (should I die) and also use draw down to get a larger amount back each year for the 15 / 20 years I would have left to live.

The bit about you paying in more doesn't impact on the decision to transfer or not as any extra would go elsewhere (unless you have one of those extremely rare but does exist plans that are allowed to accept increments despite S226s being withdrawn in 1988).

Also, it seems as if you could be underestimating your life expectancy.    If you are looking at around 65 then you could be looking at 25-30 years before you die. 

I would just like to get a steer on this before I go to see and IFA, the last one I saw around 3 years ago when I wanted to take out another pension was not confident to give advise on the GAR fund (saying its not the best but its okay and was unsure if I should transfer to the pension he was trying to set up for me at the time) he did have the full fact presented to him from Royal London.

The problem is that the annuity rate is not a great double-digit one but not a rubbish low single-digit one.   It sits in between.  That said, I would need a lot of convincing to switch out of an 8% GAR.

It probably would come down more to how it fits with your wider planning and how much secure income you have from elsewhere.

I am self employed, will have other means for my retirement and do not envisage a lavish lifestyle but will easily get to the amount suggested by Which as a comfortable retirement, I just don't like to see this fund under-performing.

You should focus on your information and not that of Which?    Where you live can impact on the cost of living.  One person's lavish lifestyle is another person's normal lifestyle.    Look at what you spend now and remove the cost of liabilities, monthly savings and pension contributions.     You may not have expenses you incur when you are working but you will have an extra 7 or so hours a day to find something to do.   

simonr1100gs

Thank you very much for your reply. I fully appreciate your comments.