Deferred Annuity pension (Section 32?) and PCLS.

Newcad

Hi pensioners and pensions guru's.
I have had a trawl of the forum (and the web) but can't find the answer to my particular query.

I have had a new state pensions forecast and will have a full new state pension in 2026.

I also have an old workplace pension which was transferred some years ago to a Deferred Annuity policy with Prudential.
I believe this is probably a Section 32 policy (pre A-Day).

The policy is due to reach it's commencement date early in 2025, a year before SPA.

I am aware that Pru will/should provide a 'options pack' nearer commencement, but I am trying to get a head start on what options I may be offered.
Of course I could/should ask the Pru, but would like other thoughts and experiences too.

I have the policy document and believe that I am fairly clear on what benefits will be available on commencement, and if deferred.
There are 2 GMP amounts from 1985 which have both been increasing by 7% PA until commencement.
After commencement the first, smaller, amount is static with the 2nd amount increasing annually by the lower of RPI or 3%.
If deferred there is an increase until commencement of 1/7% simple per week in both amounts, with the 2nd amount also attracting the RPI or 3% increase per year.

I also believe, but here is where I am unsure, that the policy will qualify for a Pension Commencement Lump Sum (PCLS).
Although the policy document does state "Lump sum payment period (Years) - Not Applicable" against both amounts  I believe that refers to the policy as purchased and not to PCLS?

My preferred option at the moment, if possible, would be to take a moderate PCLS (around 5% - 10% of the 'pot') at commencement date, and defer the rest until State Pension Age.
(That is because I am in receipt of Income Related benefits, UC, which would be reduced £ for £ by any pension income taken and/or reduced by taking a lump sum which would put my capital/savings over £6k).
I am aware that taking a PCLS in that way would reduce the amount payable at the deferred commencement date.

Failing a PCLS and deferment option being available I would probably simply choose to defer the whole amount to SPA.

So to my question:

I would be grateful if anyone, particularly anyone who has had a similar deferred annuity pension plan commence, could give any insights as to what generally happens when this type of policy reaches commencement.

ie. Would a PCLS usually be offered when this type of policy reaches commencement?
Would my preferred option of taking a moderate PCLS and deferring the remainder be possible?

 

Marcon

Newcad said:

Hi pensioners and pensions guru's.
I have had a trawl of the forum (and the web) but can't find the answer to my particular query.

I have had a new state pensions forecast and will have a full new state pension in 2026.

I also have an old workplace pension which was transferred some years ago to a Deferred Annuity policy with Prudential.
I believe this is probably a Section 32 policy (pre A-Day).

The policy is due to reach it's commencement date early in 2025, a year before SPA.

I am aware that Pru will/should provide a 'options pack' nearer commencement, but I am trying to get a head start on what options I may be offered.
Of course I could/should ask the Pru, but would like other thoughts and experiences too.

I have the policy document and believe that I am fairly clear on what benefits will be available on commencement, and if deferred.
There are 2 GMP amounts from 1985 which have both been increasing by 7% PA a year until commencement.
After commencement the first, smaller, amount is static with the 2nd amount increasing annually by the lower of RPI or 3%.
If deferred there is an increase until commencement of 1/7% simple per week in both amounts, with the 2nd amount also attracting the RPI or 3% increase per year.

I also believe, but here is where I am unsure, that the policy will qualify for a Pension Commencement Lump Sum (PCLS).
Although the policy document does state "Lump sum payment period (Years) - Not Applicable" I believe that refers to the policy as purchased and not to PCLS?

My preferred option at the moment, if possible, would be to take a moderate PCLS (around 5% - 10% of the 'pot') at commencement date, and defer the rest until State Pension Age.
(That is because I am in receipt of Income Related benefits, UC, which would be reduced £ for £ by any pension income taken and/or reduced by taking a lump sum which would put my capital/savings over £6k).
I am aware that taking a PCLS in that way would reduce the amount payable at the deferred commencement date.

Failing a PCLS and deferment option being available I would probably simply choose to defer the whole amount to SPA.

So to my question:

I would be grateful if anyone, particularly anyone who has had a similar deferred annuity pension plan commence, could give any insights as to what generally happens when this type of policy reaches commencement.

ie. Would a PCLS usually be offered when this type of policy reaches commencement?
Would my preferred option of taking a moderate PCLS and deferring the remainder be possible?

 

A S32 policy (and you don't even seem sure it is that, which is pretty important) which was used to buy out an occupational scheme which included a GMP must provide a pension at least equal to the GMP at GMP age (65 for men). Whether you will be able to take a tax free lump sum depends on whether the policy can allow that and still meet its obligation to pay a pension at least equal to the GMP.

You've gone into a lot of detail but I'm afraid the only sensible answer is to ask the Pru. There's absolutely no point asking other people for war stories, because those will have zero impact on whether or not a tax free lump sum is going to be possible, let alone how much it could be.

 

Newcad

Thank you for your reply.
It was a workplace pension from a company where I worked, it was wound up and transferred to a deferred annuity when they were taken over after I had left them, I had no knowledge of the transfer at that time and only tracked the pension/annuity down later.
It's that winding up and transfer that makes me believe it is an S32.
Of course the Pru will have the answers, and as I clearly stared I am expecting a 'pack' from them in the next few months.

But there is no harm in canvassing independent opinion and comments too, don't we always advise to take independent advice?
Indeed isn't that the purpose of this forum?

And of course I'm not asking anybody to try and calculate any amounts.

I am simply trying to gain knowledge of how such policies work in general.
Yes I went into detail, I give working age benefits advice myself and know how frustrating it can be when posters 'drip-feed' necessary details.

Marcon

Newcad said:

Thank you for your reply.
It was a workplace pension from a company where I worked, it was wound up and transferred to a deferred annuity when they were taken over after I had left them, I had no knowledge of the transfer at that time and only tracked the pension/annuity down later.
It's that winding up and transfer that makes me believe it is an S32.
Of course the Pru will have the answers, and as I clearly stared I am expecting a 'pack' from them in the next few months.

But there is no harm in canvassing independent opinion and comments too, don't we always advise to take independent advice?
Indeed isn't that the purpose of this forum?

And of course I'm not asking anybody to try and calculate any amounts.

I am simply trying to gain knowledge of how such policies work in general.
Yes I went into detail, I give working age benefits advice myself and know how frustrating it can be when posters 'drip-feed' necessary details.

But nobody here will know, so 'canvassing independent opinion' (based on a policy which may not even be a S32 - the paperwork you've got should confirm) is basically a waste of time in the absence of any facts relating to the terms of your particular policy. 'General' working of a policy when you've not even confirmed the type of policy is a waste of time. The info you've given omits the crucial details - ie the terms of your actual policy. Have you read it?

Independent advice is generally helpful when it is properly informed (and this forum doesn't actually give advice), as opposed to under-informed speculation based on hopelessly inadequate facts.

Googling on 's32 policy' will give you plenty of general info. 

xylophone

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


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

https://www.mandg.com/wealth/adviser-services/tech-matters/pensions/types-of-arrangement/section-32#:~:text=Section 32 providers must guarantee,shortfall to provide the GMP.


You were a member of a contracted out occupational pension scheme between 1978 and 1997,

Because your scheme was contracted out during this period, it had to guarantee to pay you a pension at GMP age (60 F/65M) that was at least equivalent to what you would have received had you not been contracted out of SERPS.

You left the scheme at some point between between 6 April 1993 and 5 April 1997 and presumably were advised that you had a deferred pension within the scheme.

Presumably you were given a statement of deferred benefits on leaving which would have shown pre 88 GMP/post 88 GMP and excess over GMP.

There were certain requirements relating to how your pension revalued in deferment.

Your scheme chose Fixed Rate Revaluation in respect of the GMP which was accrued between 6/4/78 and 5/4/88 and between 6/4/88 and 5/4/97.

The excess revalued differently. There were statutory requirements but your scheme may have been more generous.

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

Had you pension remained deferred within the scheme and you took it at age 65, you would have found that your pension was split to

show pre 88 GMP/post 88 GMP and excess over GMP.

 Once in payment, the scheme would have had no obligation to increase your revalued pre 88 GMP -   however it would have been obliged to increase your revalued post 88 GMP by up to 3% per annum (depending on inflation) and your revalued excess under scheme rules.

The scheme seems to have been wound up after you left - the Trustees made arrangements for individual pensions to be secured with Prudential by means of a S32 pension policy for each member.

See the general information in links above.

However, there were certain "quirks" within these S32 policies (depending on the provider) - only Prudential can provide you with information relating to your specific arrangement.

Newcad

Thanks @xylophone

That comprehensive reply has been very helpful, it confirms my general understanding and adds to it.

The deferred annuity is still in deferrement and I have no intention of trying to transfer it elsewhere before age 65 which happens in Feb 2025.

I don't recall just what paperwork I got when leaving that employer. (I was made redundant with little warning so documents about a pension due 30 years later were not a big concern at the time. I then had to move to a different part of the country quickly to take up new employment and paperwork got mislaid in the move.
I was unaware that the pension scheme had been wound up and transferred a deferred annuity until years later when I tracked it down again).

I have had a read of your links,I already had the M&G one but not the others, thanks for those.

I think that my question was probably poorly worded out of ignorance, and that what I was asking is if the general PCLS rules/legislation may still apply regardless of the type of policy itself.

The answer would appear to depend on if the fund value (the 'pot') that has accumuated will give sufficient funds to cover the GMPs or not.
If there is sufficent and an excess then a lump sum option may be offered (or may not).

I do understand that now it will come down to what Prudential offer and what any options will be when that offer comes, which should be fairly shortly.
I also understand that there may not be an offer, just a statement of 'this is what we will pay as from XXX unless you want to defer the commencement'.
I am just doing a 'what if' kind of guessing excercise until I do get that offer.

Thanks again.

EDIT -
If I remember then when I do get the offer/statement from Prudential I will come back and post about it.
It may be information that will be of help to others.

dunstonh

But there is no harm in canvassing independent opinion and comments too, don't we always advise to take independent advice?

No.   Advice to non-advised is around 50/50 now and of the advised, the latest RMAR figures from the FCA say 12% of advice firms are restricted, 2% offer independent and restricted and the remainder is independent.

So, technically, DIY is now greater than independent advice.

Indeed isn't that the purpose of this forum?

No.  Nothing on this forum, with respect to financial services, is advice.  Its just opinion and discussion.

The answer would appear to depend on if the 'pot' that has accumuated will give sufficient funds to cover the GMPs or not.

That is it in a nutshell in respect of the fund covering GMP.  The excess, if any, doesn't get used towards that.

Anecdotally, most funds don't have enough to cover the GMP so the tax free cash is reduced or non-existent.    However there are plenty of S32s which have no GMP to cover and have greater than 25% TFC available to them.   That can lead to other complications as its not always possible to transfer the crystallised element for flexible benefits.

S32s are pretty complicated and have many variations.

I do understand that now it will come down to what Prudential offer and what any options will be when that offer comes, which should be fairly shortly.

Remember that Pru will not give you advice and it may not cover all the options.   Often additional questions need to be asked of the provider that they do not cover in their default pack.

Newcad

dunstonh said:

Remember that Pru will not give you advice and it may not cover all the options.   Often additional questions need to be asked of the provider that they do not cover in their default pack.

Yes indeed,
and that's one reason for canvassing opinion here and generally trying to find what the options may be and what questions may need to be asked.

As with anything you need to know what to ask about so that you know that you should ask the question.

Asking simple/stupid questions on a forum and getting opinions helps to narrow down and clarify just what you should be asking, so that when the time comes you can ask the questions that are relevent.