Option 32 Pension - Royal London

Misteeq

Hoping someone can help explain what an Option 32 Pension is please?

My partner has an Option 32 Pension and has recently received a letter from Royal London to advise that he is unable to take a lump sum payment as the 'pension that could be paid at the present time is lower than the Guaranteed Minimum Pension (GMP)'.

Royal London have stated they are unable to make a payment of any benefits from the polilcy until he reaches the age of 65.

My partner is 61 and is able to take a lump sum payment from his other pensions, so he is just wondering why this particular pension is different.

Many thanks in advance for any insight.

dunstonh

Hoping someone can help explain what an Option 32 Pension is please?

Option 32 was the marketing name Royal London use for a Section 32 Buy Out Bond.

My partner is 61 and is able to take a lump sum payment from his other pensions, so he is just wondering why this particular pension is different.

It is not a personal pension.  It is a different type of pension.  Typically used for transfers of occupational pensions.  The GMP is the blocker. Not the pension itself.    If the pension fails to grow by sufficient amount to meet the GMP requirement at the scheme retirement age, then the insurer has to make up the difference out of their money.     Any shortfall will also mean no tax free cash is available (or reduced if only some of the tax free cash is required to meet the shortfall).

Marcon

To add to the above helpful answer...

A GMP is, in broad terms, the amount of pension your partner built up in his old occupational pension scheme in lieu of the State Additional Pension (SERPS, then State Second Pension) he would otherwise have built up during his period of occupational scheme membership. Both he and his employer paid lower NI in exchange for the scheme paying the GMP.

GMPs get 'special' (complicated!) treatment, including a requirement that the pension scheme must pay an amount at least equal to the GMP when someone reaches GMP age (65 for men).

His old scheme was 'bought out' using something called a S32 bond, which meant the trustees paid the insurer an amount of money to provide his benefits. In this case, as above:

If the pension fails to grow by sufficient amount to meet the GMP requirement at the scheme retirement age, then the insurer has to make up the difference out of their money.     Any shortfall will also mean no tax free cash is available (or reduced if only some of the tax free cash is required to meet the shortfall).

xylophone

https://www.thisismoney.co.uk/money/pensions/article-3680749/I-want-pension-freedom-trapped-section-32-buyout-plan.html

Misteeq

Thanks all for your replies

It seems very complicated and I'm not sure he/we fully understand it!

But from what I understand, my partner cannot access this pension until he is 65? And he cannot take any form of lump sum payment? Even when he is 65?

The last statement earlier this year stated the pension pot was £20,118.40. Not a lot, but my partner had intended on taking a lump sum payment! Very frustrating that he can't!

Marcon

Misteeq said:

Thanks all for your replies

It seems very complicated and I'm not sure he/we fully understand it!

But from what I understand, my partner cannot access this pension until he is 65? And he cannot take any form of lump sum payment? Even when he is 65?

The last statement earlier this year stated the pension pot was £20,118.40. Not a lot, but my partner had intended on taking a lump sum payment! Very frustrating that he can't!

I'm sorry - GMPs quite simply ARE complicated, even by pension scheme standards! I don't think it matters if you understand the fine detail so long as you can follow how it actually impacts on your partner in practical terms.

From what you've said, it sounds as if he will not be able to take this pension until he is 65, and taking tax free cash isn't likely to be an option (because if he does that, there won't be enough left to pay him a pension at least equal to his GMP). 

Misteeq

Marcon said:

Misteeq said:

Thanks all for your replies

It seems very complicated and I'm not sure he/we fully understand it!

But from what I understand, my partner cannot access this pension until he is 65? And he cannot take any form of lump sum payment? Even when he is 65?

The last statement earlier this year stated the pension pot was £20,118.40. Not a lot, but my partner had intended on taking a lump sum payment! Very frustrating that he can't!

I'm sorry - GMPs quite simply ARE complicated, even by pension scheme standards! I don't think it matters if you understand the fine detail so long as you can follow how it actually impacts on your partner in practical terms.

From what you've said, it sounds as if he will not be able to take this pension until he is 65, and taking tax free cash isn't likely to be an option (because if he does that, there won't be enough left to pay him a pension at least equal to his GMP). 

Thank you! That's makes sense! Even if it's not ideal!

xylophone

See  the article reference above and


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