Pension Guaranteed Annuity Rate

ChequeBookGerry

Hello,

I have a couple of (old) UK based company pensions managed by Ageon and Rothsay.  They quote projected annual annuity amounts in my annual statements which seem alright - even based on an "average" market performance, although one seems much higher than the other.  One is £6300 p.a. with a current transfer value of £132k and the other is £11,000 p.a. with a transfer value of £152k.  Same assumptions, I'm in great health and a projected retirement age 7 years from now, however, I think the lower value for the first is due to there being a potential for spousal payment if I cark first, which isn't important to us now. So, yes, I'm looking at transferring, yes I'm looking at the option for TFLS nearer the time and yes investments can go up and down, but my question is this...  Did people find these p.a. projections accurate when they actually got the cash or were they a bit stiffed?  To me, £11k on £152k looks like a very good deal but on the day, if they were to say "ah well, it's only £5k" then I would have pulled my money years ago and got a better SIPP investment elsewhere.

Thanks. 

flaneurs_lobster

You've used the word "guaranteed" in the thread title, do either of those pension schemes have a guaranteed (or enhanced) rate mentioned in their documentation?

dunstonh

 They quote projected annual annuity amounts in my annual statements which seem alright - even based on an "average" market performance, although one seems much higher than the other.

Projections are synthetic and use varying assumptions.      Different assumptions may be used with different projections.   You cannot use those as a reliable guide to you what you may get. 

One is £6300 p.a. with a current transfer value of £132k and the other is £11,000 p.a. with a transfer value of £152k.  Same assumptions,

The differences could be down to different annuity rates being used in the assumptions, product charges and if lifestyling, some adjust the projection rate within the assumption to reflect the lower growth rates.

but my question is this...  Did people find these p.a. projections accurate when they actually got the cash or were they a bit stiffed? 

Statistically likely to be inaccurate and most projection rates tend to be pessimistic.
They cannot predic the future and the range of outcomes is so great it could be tens of thousands or even hundreds of thousands of pounds out.

To me, £11k on £152k looks like a very good deal but on the day, if they were to say "ah well, it's only £5k" then I would have pulled my money years ago and got a better SIPP investment elsewhere.

That isn't how it works.   Annuity rates have nothing to do with performance for example.   And different investments get different projected rates.  And if you are not going to buy an annuity, then you wouldn't be looking at the the different annuity rates.

Aegon don't provide annuities and I don't believe Rothsay do either (at least not via the open market).   So, neither is able to use their own annuity rates in projections.

Pension Guaranteed Annuity Rate

Do you actually have a guaranteed annuity rate on these plans?  You mentioned it in the thread title but no reference to them in the post.  What are the GARs and when do they apply?
If your values are over £30k then you wont be able to transfer them without advice as GARs are a safeguarded benefit (most GARs, but not all, are higher than the open market rates)

MyRealNameToo

The Rothesay one at least is presumably a DB pension? 

Its unlikely a DB scheme would revalue in deferment based on investment returns but instead will normally be indexed to something like RPI or CPI or if a guarantee applies potentially the national earnings index

dunstonh said:
I don't believe Rothsay do either (at least not via the open market).   So, neither is able to use their own annuity rates in projections.

Rothesay almost exclusively do bulk annuities so based on what the OP is saying its likely the pension scheme has already done a buyout with them and so they have a deferred annuity with Rothesay... they do a small amount of direct administration buy ins but they are fairly rare generally. 

dunstonh

Rothesay almost exclusively do bulk annuities so based on what the OP is saying its likely the pension scheme has already done a buyout with them and so they have a deferred annuity with Rothesay... they do a small amount of direct administration buy ins but they are fairly rare generally. 

That makes sense as I have seen Rothsay scheme pensions over the years.

ChequeBookGerry

MyRealNameToo said:

The Rothesay one at least is presumably a DB pension? 

Its unlikely a DB scheme would revalue in deferment based on investment returns but instead will normally be indexed to something like RPI or CPI or if a guarantee applies potentially the national earnings index

dunstonh said:
I don't believe Rothsay do either (at least not via the open market).   So, neither is able to use their own annuity rates in projections.

Rothesay almost exclusively do bulk annuities so based on what the OP is saying its likely the pension scheme has already done a buyout with them and so they have a deferred annuity with Rothesay... they do a small amount of direct administration buy ins but they are fairly rare generally. 

Correct.  It is an old Asda scheme.

MyRealNameToo

dunstonh said:

Rothesay almost exclusively do bulk annuities so based on what the OP is saying its likely the pension scheme has already done a buyout with them and so they have a deferred annuity with Rothesay... they do a small amount of direct administration buy ins but they are fairly rare generally. 

That makes sense as I have seen Rothsay scheme pensions over the years.

Yeah, you have them and PIC, both are pretty much investment firms that happen to get their assets from doing bulk annuity deals.  Rothesay isnt so bad but PIC were something like 90% reinsured the last time I looked and often do a bulk annuity deal back to back with a longevity swap on the same. So despite being an insurance company they have almost no insurance risk 

Obviously being an insurer it ceases being a pension scheme and becomes an insurance policy but by the time you get to buy-out the annuity matches the terms of the former scheme so people still refer to them as a pension etc but there are legal differences. Whilst still at buy-in, which typically means the insurer pays the pension scheme and the pension scheme pays the pensioner, the rules may be simplified and so the flows of monies may not be identical. There is the edge case where its still a buy in (so the scheme is the policyholder) but the insurer pays the pensioner directly (the transition from buy in to buy out results in individual policies being issued to the pensioners) 

Did a few years in annuities but its a weird world for someone from an insurance space as everything is backwards... Home you pay a small premium and hope not to make a big claim, annuities its a massive premium and then you make a small claim every month. A realistic disaster scenario in Home is a bad winter with lots of burst pipe claims combined with floods, for annuities its a cure for cancer. Home insurers say you should take care and mitigate risks, annuity insurers are all for base jumping grannies and other high risk activities. 

xylophone

Presumably you have documentation from the insurers in question.

Does it state that you will require the advice of a pension transfer specialist before a transfer out would be permitted?

https://www.gov.uk/government/publications/pension-benefits-with-a-guarantee-and-the-advice-requirement/pension-benefits-with-a-guarantee-and-the-advice-requirement

5.2 Buy-out policies (including Section 32 policies)

Where a member’s accrued benefits under an occupational pension scheme have been “bought out” (i.e. the scheme’s liability has been discharged by the purchase of a deferred annuity or insurance policy), the benefits under the contract or policy will be safeguarded if an amount of pension income is secured, or if a liability in respect of contracted out rights (such as a Guaranteed Minimum Pension) has transferred under the contract or policy to the provider, or if the terms of the contract or policy otherwise include a guarantee about an amount of pension income or a rate of conversion into an income.