Protected rights question

lilac_lady

I'm about to receive an annuity from Norwich Union. They sent me a joint life claim form instead of a single life one. When I called them (Indian Call Centre) I was told that my policy was "protected rights" one so I had to have a spouse who will benefit from it when I die. I'm divorced, so short of joining a speed dating agency to get a spouse, I'm stuck for an answer.

cyclonebri1

Interesting? but sorry, no answer other than could it be construed that as this is a two way protective thing ie it works without discrimination, them your ex husband may have some entitlement here which may have been missed in the divorce settlement?

Sorry, not advise but I am interested,:o

lilac_lady

I thought a divorce was a full and final settlement on all matters including financial ones. I'm going to ring my IFA tomorrow and will post his advice.

dunstonh

Protected rights has to be taken with a 50% spouse benefit included even if there is no spouse at this time.

It can be a good reason to look at doing income drawdown instead and wait until the protected rights no longer has this requirement.

lilac_lady

If I don't take the annuity now I have to wait till I'm 75 so I need to take it now. Apparently there's no inbetween time when I can have it. How long does a protected rights clause last? My IFA took charge of this when he placed the money with NU.
He knew I was divorced so has he arranged the wrong annuity for me?

jamesd

The protected rights limitation comes from the government, not the IFA or pension company: the government currently insists that if you get an annuity it has a spouse benefit clause. It's irrelevant whether you actually have a spouse or not, regardless of whether there was a divorce or never a marriage at all. The government assumes that at some point in your remaining life you may get married so that person might benefit and save the state some means tested benefit money by them receiving the spousal pension.

There's talk of this changing, perhaps within the year, to eliminate that requirement. The possible bad news is that currently these annuities are priced for an average of male and female life expectancy and there's also talk that at the same time the rules will change to base the annuity on the gender of the person getting it. Since women live longer than men on average that means that a pension for a woman will decrease and that for men will increase, both so that the same amount of money will last for the different number of expected years of life.

You don't actually have to buy an annuity. It's possible to use something called "income drawdown" and leave the money invested while taking a percentage of it as income. So you could do this until the rules change, or even after they change if you like.

There's no inherent reason why you'd have to do something now or at 75. This may be a restriction imposed by Norwich Union based on your particular type of policy.

There's also no inherent reason why you can't transfer the money to any other pension provider, regardless of whether you made your pension contributions to NU. However, if your pension has something called guaranteed annuity rates, those are usually higher than current annuity rates and would probably make it unwise to switch.

The usual age 75 restriction is that you must either get an annuity or start using income drawdown by age 75 and that after age 75 is using income drawdown you can switch to either an annuity or an alternatively secured pension, which is effectively a continuation of the income drawdown. Anything else depends on the particular pension policy contract terms.

Your IFA should be explaining all of this to you. In particular, if your pension contributions went to NU, why you're buying the annuity from NU instead of using the "open market option" to buy the highest amount of annuity for your money and why you're buying an annuity now instead of using income drawdown while waiting for the change to eliminate the spousal pension requirement.

Questions to ask the IFA:
1. Does this pension have a guaranteed annuity rate or any other feature that locks me into using NU to avoid suffering a big loss?
2. Can I transfer and use income drawdown for a year or two until the requirement for a spousal pension goes away? Will this fit my risk tolerance, since it'll require managing investments?
3. Will using the open market option get me a higher annuity payment?
4. If I don't want to take the pension now, why must I wait until I'm 75 and can I avoid this by transferring the pension fund to another company? If not, why not?
5. Is all of the pension pot protected rights or can I split it into protected rights and regular pension pots and get a single life annuity with the non-protected rights portion? If not, could I do it by switching away from NU without losing any guaranteed annuity rate?

Posting the answers here would be helpful also, since this is also the information needed for people posting here to say more.

lilac_lady

Thanks jamesd. My IFA chose NU because it offered the best level term annuity for me. (an enhanced ill health one). It's only a £25000 one, not my main one but I'd like take it now and not wait. I'll post again once I've spoken to my IFA.

dunstonh

What type of pension is it?

Is it a retirement annuity contract? A personal pension (including stakeholder) or a section 32 buy out bond?

If its an RAC or Section 32 then that could explain the "no inbetween". However, a personal pension/stakeholder would have a flexible retirement age. A section 32 and RAC can also be transferred to allow a flexible commencement date although if there are guarantees on the plan they would usually overule that.

lilac_lady

I'm not sure what type it is. The money went to NU last July so has only been with them since then. Left a message for my IFA so hope he can explain it all.

lilac_lady

I got a letter from NU sayong it was enclosing a new illustration - they didn't send one. There was also a declaration of health form for SEVERE ill health asking my doctor to sign a form saying that I was expected to die within the next 12 months.!!!!! They said a copy of the letter had been sent to my IFA. He's not received a copy. My IFA said that they had sent me the wrong forms and that he would call them today. He also said that they'd got it wrong about not being able to take the annuity till I'm 75 if I don't take it now. I've not a lot of confidence in NU so I hope my IFa can sort it all out soon. What a mess!

Retired_I.F.A.

Learn about drawdown before you decide to buy an annuity.
There are pros and cons to drawdown as there are to an annuity but the better informed you are the better the decision you will make.