S32 with GMP Annuity v transfer to flexible drawdown pension at 5% return

VeryActivePensioner

Hi, I have transferred all my occupational pensions into a single SIPP with II (I have been retired for 2 years and now 63). This has gone well (although has taken longer than expected) and I have been actively managing my pension pot with good success. The only pension that I cannot seem to transfer is an Aegon S32 Buy-out with GMP. The Non-reserved fund value is £38,000 and the Reserved with profit option is £13,000 with a terminal bonus of £2,000. If I do nothing this will deliver a projected GMP in 2 years time of £1,500 per annum (assuming this to be an annuity).

What I do not understand is why (if I can legally do so) wouldn't I transfer this pension (even at a loss of profits and bonus leaving just the Non-reserved fund of £38,000 to transfer) into my SIPP where I am highly confident I can return an absolute minimum of 5% growth with anything above that being a bonus - without touching the capital if I drawdown on this growth. Without compounding/inflation lining etc in very primitive terms this would deliver an income stream of £1,900 per annum.

By way of reference my SIPP value growth in the last 3 years has been 26%.

I know I would need to go to an IFA expert in S32 Buyout transfers to make this happen but am I missing something material in my logic here? Unless of coarse the IFA charges £10,000 for the transfer!). This would be a win for both me and Aegon wouldn't it?

Looking forward to any experience or advice on this.

Thanks Mark

LHW99

No expert, but S32 policies are an odd beast, where the rules are not the same as for a normal DC pension. Was it used to accomodate a closed DB pension?

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

As I understand it Reserved Units will be used in the first instance to provide the GMP. However, if the proceeds of the Reserved Units are not sufficient to provide the GMP then the company will use the non reserved units ( and possibly any bonus)?

VeryActivePensioner

Yes, the S32 policy with Aegon was used by a previous employer to close out their pension responsibilities.

Does anyone disagree that I should try to transfer out of this almost at any cost as long as I believe I can generate more than the estimated revenue stream from an Aegon annuity?

Does anyone have any idea how much an IFA would charge to help with this transfer?

Thanks for the comments so far 😀

Regards Mark

dunstonh

Does anyone have any idea how much an IFA would charge to help with this transfer?

Its a high risk transaction that requires a pension transfer specialist.  So, circa £5k.

Linton

Inflation linked drawdown at 5% of initial pot size may not be sustainable for the whole of your life.  It's easy during the good times such as the past 3 years but if you drawdown that amount during a crash or long term downturn you will start to eat into the core capital you need for future returns.

To take an extreme case, between November 2000 and November 2010 the FTSE World index without reinvestment of dividends decreased by 5% in £ terms overall whilst CPI increased by about 20%.

Of course if you simply drawdown 5% of your then current pot size the money will last forever but there is no guarantee of future returns either in £ or real value terms.

You could take the view that this is a relatively small part of your income and so you are happy to take the risk and wont lose sleep in a crash.  However an IFA may well consider that 5% drawdown is an over-ambitious comparison with the guaranteed income from the S32.

VeryActivePensioner

Thanks Dunstonh - will look for an Advisor to help as that would (have to...) be acceptable. 

Also thanks Linton , of course no guarantee of my ability to grow the transferred amount faster than inflation but I guess that's the game we are all in and as you say it is a small amount and the capital will be consolidated into a diversified portfolio as well. 

PaulCooper

Not sure if this is relevant, but could be? 
I had one of these via Aegon, with a GMP, which was something like £1k pa. Prompted by this site, I asked if there was a GAR (Guaranteed Annuity Rate) There was, it was 9.8% approx! The value of the fund when I retired was £50k approx and it now pays me £5k pa with a 50% widows entitlement. Not bad considering my initial investment was just over £1k in the eighties.
Worth asking the question about GAR before doing anything 
Paul 

cloud_dog

dunstonh said:

Does anyone have any idea how much an IFA would charge to help with this transfer?

Its a high risk transaction that requires a pension transfer specialist.  So, circa £5k.

@dunstonh,  I thought you had commented previously (this is going back many years!!!), that it might be possible to transfer out the 'non-reserved' fund value without advice, whilst leaving the reserved fund? 

Two caveats to the above, I'm sure you would have actually said it might be possible and to check with your provider etc, and (obviously), time has moved on and newer restrictions might now apply.

dunstonh

@dunstonh,  I thought you had commented previously (this is going back many years!!!), that it might be possible to transfer out the 'non-reserved' fund value without advice, whilst leaving the reserved fund? 

The "excess" part of the pension is not classed as safeguarded benefits and as long as the provider will allow that bit to be transferred whilst leaving the rest, then it can be done without advice required.

xylophone

https://www.pensions-ombudsman.org.uk/sites/default/files/decisions/PO-18261.pdf

May be of interest. Inter alia

1. Aegon provided its formal response to this office, and in summary said:-

   •   It has provided the IFA with a copy of the 1998 Policy conditions, which were in place at the time Mr N took out the Policy.

   •   The Policy conditions clearly state that in the scenario where the value reserved units are insufficient to fund the GMP, non-reserved units will be used.

   •   The Policy conditions also state that if non-reserved units are insufficient to fund the value of providing the required GMP, the member has no right to transfer their non-reserved units.

   •   Upon receiving Mr N’s request to transfer out his non-reserved units only, Aegon carried out the requisite calculations and found that there were insufficient non- reserved units to meet the required value needed in order to pay Mr N’s GMP. Therefore, it was Aegon’s position that Mr N does not have the right to transfer out his non-reserved units, in accordance with the Policy Conditions.

1. Ombudsman’s decision

1. When Mr N transferred his pension benefits to the Policy with Aegon, the expectation would have been that Aegon provide Mr N’s GMP as well as additional pension benefits. However, it has transpired that the value of the transferred pension benefits are not enough to fund the cost of the GMP, which Aegon are under a statutory obligation to pay.

2. As this is the case, Aegon has the ability to use Mr N’s non-reserved units to supplement the cost of providing the GMP, as set out in the Policy Conditions. However, the IFA has argued that the contra proferentem rule applies because this is not stated in the Policy Schedule he has provided, which he says has greater precedence over the Policy Conditions.

2. I do not agree with the IFA’s position. The Policy Conditions are the terms Mr N agreed to upon signing up to the Policy, and override the Policy Schedule. I do not find that any ambiguity or confusion arises simply because the Policy Schedule does not mention that non-reserved units can be used to provide the cost of providing Mr N’s GMP. I agree with the Adjudicator that the Policy Conditions clearly set out that non-reserved units will be used to fund the cost of Mr N’s GMP if reserved units are insufficient, and that non-reserved units cannot be transferred if they are being utilised in such manner.

3. Consequently, I find that the contra proferentem rule cannot be used to allow Mr N to transfer his non-reserved units away from the Policy.

4. Therefore, I do not uphold Mr N’s complaint.