Final Salary Scheme "Reserved Units"

gonefishing

I hope someone will be able to explain the how Reserved Units work, relating to a small final salary pension I have, now with Rothesay, previously Aegon.

  

The situation is this:-

In 2013, when I was 55 I tried to take maximum lump sum allowed at the time and buy an annuity with the balance.  Aegon refused and only allowed me a small lump sump and tiny annuity, as they said I was unable to take the Reserved Units until retirement age (then 65).  I needed the money at the time so wise or not, I accepted the reduced lump sum and have since been receiving a small monthly pension payment (now from Rothesay).  I wrote to Aegon a few years later asking for clarification as to what happened to the "Reserved Units" and they replied:-

"Your Non-Reserved Unit fund was fully surrendered on 17 Dec 2013, therefore, the only benefits remaining are in respect of Reserved Units, which are set aside to secure the Guaranteed Minimum Pension of £2,893.80 pa.  The Reserved Unit fund cannot be taken prior to retirement date and will remain in the policy until State Pension Age (65)."

Am I right in assuming that when I reach retirement age, my pension will increase from about £350 pa., to £2893.80 and is this likely to be at the new state pension age of 66 or does it remain at 65?

I wrote a few weeks ago to Rothesay for clarification and so far they have not responded, which is a slight concern.  I know I need to call them, but think maybe I should be fore armed with a little more knowlege first.  It sounds as though I am now locked into the scheme, so I guess an IFA probably won't be able to help much?

Any help will be gratefully received.

Thank you

xylophone

I hope someone will be able to explain the how Reserved Units work, relating to a small final salary pension I have, now with Rothesay, previously Aegon.

You have a S32 policy arising from the transfer of a DB pension with GMP to Aegon (Scottish Equitable) which was part of the portfolio sold to Rothesay?

https://www.financialadvice.net/s32_buy_out_plan/zone/1288 may be relevant.

If  this is a S32, it would seem  likely that at transfer, the funds were applied to reserved units (to finance the promise of the GMP) and non-reserved units (to fund benefits over and above the GMP).

 In the case of your policy, this seems to work almost like a DB (GMP) plus DC pension - (non-reserved units).

You were permitted to take your quasi DC portion at age 55 (minimum access age)

I am assuming that you are male - therefore any GMP benefit is due no earlier than age 65 (and will be paid no earlier if the supporting fund is not large enough to finance the GMP).

At GMP age, whether the GMP fund is large enough or not, the insurer is legally bound to meet the promise of the GMP (which will be revalued to age 65).

The insurer is not bound to increase any  pre 6/4/88 GMP once in payment - it must increase any post 6/4/88 GMP by up to 3% CPI.

Incidentally, GMP age (60 F/65 M) used to align with State Pension Age but no longer does.

Have you obtained a State Pension Forecast?

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

Do you have your policy document? If so, you should read it very carefully.

gonefishing

Thank you.

Sadly, I have very little documentation.   I think it was Scottish Equitable when I first knew about it, but it had been several others before I'm told, so I've no idea who the contributions were made to originally; certainly not Scottish Equitable.

I only paid into the pension for a couple of years when I was just a kid really, so had completely forgotten about it (if I ever knew!).  If I hadn't bumped into an old work colleague, many years later, I'd have been none the wiser.  Whilst there are a few gaps in my State Pension Contributions, I am on target to receive a full state pension.

I assume Rothesay are required to honour the terms of the original policy; it certainly looks as though Aegon were, but I've had nothing at all from Rothesay (apart from the monthly pension), but maybe I've not asked the right questions?

xylophone

I am on target to receive a full state pension.

Your original Pension scheme (source of S32) was "contracted out".

Were you ever a member of any other contracted out scheme?

Is a COPE shown on your state pension forecast?

What does your forecast say in respect of any future contributions required to achieve a full NSP?

I assume Rothesay are required to honour the terms of the original policy;

Yes, you are entitled to the GMP.

Marcon

gonefishing said:

"Your Non-Reserved Unit fund was fully surrendered on 17 Dec 2013, therefore, the only benefits remaining are in respect of Reserved Units, which are set aside to secure the Guaranteed Minimum Pension of £2,893.80 pa.  The Reserved Unit fund cannot be taken prior to retirement date and will remain in the policy until State Pension Age (65)."

Am I right in assuming that when I reach retirement age, my pension will increase from about £350 pa., to £2893.80 and is this likely to be at the new state pension age of 66 or does it remain at 65?

I wrote a few weeks ago to Rothesay for clarification and so far they have not responded, which is a slight concern.  I know I need to call them, but think maybe I should be fore armed with a little more knowlege first.  It sounds as though I am now locked into the scheme, so I guess an IFA probably won't be able to help much?

Yes, payable from age 65.

If you only wrote to Rothesay a few weeks ago, then you need to give them longer to reply - and I don't think you have any cause for concern. If you ring them, it will only take resources away from dealing with correspondence, and probably lead to (a) a long time holding on to get through and (b) a frustrating conversation!

gonefishing

Thank you all, you have answered my questions, which has put my mind at rest regarding the GMP. 

I had not noticed the Contracted Out link on my Pension Record - my COPE estimate is £32.73 per week, the siginificance of which I'm not really sure, so I've more research to do.

Thank you again; much appreciated.

MallyGirl

The COPE amount just shows that you were contracted out for a period. It means that you paid reduced NI for that time.

xylophone

my COPE estimate is £32.73 per week, the siginificance of which I'm not really sure, so I've more research to do.

If your S32 policy relates to your only contracted out period, then it arises from the GMP to which you refer.

The COPE was used once only to establish your "starting amount" for NSP.

On 6/4/16,  two calculations were done for you

NI years/30 (max) x £119.30 (Full Basic) + (Additional State Pension - Deduction for Contracting Out.

(NI years/35(max) x £155.65 (Full NSP)) - Contracted Out Pension Equivalent. 

Your starting amount was the higher of the two.

See  (simple version) from pre introduction.

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/181237/single-tier-pension-fact-sheet.pdf

and/or (more detailed and up to date)

https://www.gov.uk/government/publications/new-state-pension-if-youve-been-contracted-out-of-additional-state-pension/the-new-state-pension-transition-and-contracting-out-fact-sheet