How to convert an AVC fund to an annuity?

peterfleet

Perhaps some readers might be interested in what happened with my AVC conversion.

I now have an annuity in place that will produce its first monthly payment on 8th January 2005. I think it has happened relatively quickly, much to my surprise.

This is what happened with the AVC fund.

05/11/2004 I ask my employers pension admin unit to obtain for me a fund value statement. This arrives on the 10th. I research some IFAs, after deciding to use an IFA, partly influenced by this thread.

17/11/2004 I instruct the pension admin unit to arrange for the AVC fund to be disinvested from the insurance company. Found a suitable IFA based in London and asked them to find quotes for a specific type of compulsory purchase annuity.

26/11/2004 I get a letter from the IFA with the quotes and a recommendation for an L&G annuity. The IFA also sends me L&G's application form, details of the proposed annuity, key features,etc.

Between the 26th and 29th I get guidance from the IFA by phone and arrange to visit the IFA's office (which is convenient for me.) with application form and certificates (birth, marriage) that I would not trust sending via mail.

29/11/2004 I visit the IFA and complete all of the documents. Under guidance I send a letter to the pension admin unit asking them to send the proceeds of the AVC disinvestment to L&G by a set date (2 weeks hence).

Between then and the 9th December, the IFA progresses the movement of the disinvestment money from the AVC insurance company to the pension admin unit, and from them to L&G, keeping me informed.

10/11/2004 I get a letter from the IFA with the final quote from L&G to match the actual monies transferred. I accept this via the IFA. IFA says wait for L&G policy document for the annuity.

16/11/2004 I receive by mail from L&G notification that the pension will be payable from 08/01/2005, being paid monthly in arrears.

I expect the actual L&G policy to arrive soon. And that will complete the conversion processes, I think.

Pal

Sounds alright to me, although I assume that your last two dates are incorrect?

Is this a positive endorsement of an IFA?

peterfleet

Yes, sorry the last two dates should have been December not November.

I have found that using the IFA has been a worthwhile method of converting the AVC. In particular, they moved quickly, and they kept me informed of progress. On top of that they were prepared if necessary to "walk the cheque" (rather than risk mail delay) from the pension admin unit to L&G in order to comply with the deadline. If the deadline had been missed the L&G quote would have expired, and because annuity rates were falling I might have obtained a lower pension.

In terms of value for money, the commission paid by the annuity provider to the IFA, will be about 1.36% of the capital sum. I am happy to have done it this way rather than negotiate a fees arrangement.

I don't have any hangups about using and paying for professional services from solicitors and intermediaries and the like for as long as I believe that I am receiving fair value and no nasty surprises. Finding these individuals in my experience is difficult, because qualifications and "letters after the name" do not eliminate the incompetent. I have had one bad experience over a relative's will where a solicitor failed to draft the document without ambiguity to reflect the testator's wishes.

I think the lesson I have learned in dealing with professionals is to understand their proposed way of providing the service and the likely timetable before appointing them, and then keep in regular contact until the services have been completed - if necessary "ride" them so they soon realise that you are "on the case". Some would argue that if the professionals selected were competent you should not have to do this. That's true, but if you are employing these professionals for the first time (and have no first hand recommendation) I think it would be foolish not monitor closely their progress and performance.

erb

Not posted on this thread for ages because my transfer information is taking for ages to come. Just to recap I am considering transferring my deferred occupational pension from old employer's DB scheme to new employer DB scheme, final salary. I also had an in house AVC paid to Equitable Life through old employer.

Old employer has now provided the transfer value and new employer has informed me what pension benefit this will buy. However, old employer has not mentioned the transfer value of the AVC nor provided a pension benefit statement if I stay in their scheme.

I have told my current employer who are communicating with the old employer's pension dept. that I think (based on advice from this board) the AVC has to be transferred as well and I require a transfer value for it. Also, I need a pension benefit statement if I stay in their scheme to compare against new scheme. Current employer will request from old employer but said the AVC transfer value could not be included in the current employer's final salary DB scheme.

So if old AVC does have to be transferred what will I be able to transfer it into .

Tel_4

One thing you may wish to consider before converting your AVC fund into an annuity.

It is unlikely that if you vest your AVC fund now and purchase an annuity that it will be able to provide you with a tax free lump sum (unless this was taken out prior to Nov 1987 working from memory).

From "A" day (6/4/2006) it should be possible for 25% of the AVC fund to be taken as tax-free cash. This would depend on your AVC provider agreeing to this, and adopting the new flexibles rules contained within the recently passed finance and pensions acts.

Might be worth your while waiting if tax free cash is an objective over annuity purchase.

T.

Pal

Erb: Your AVC transfer value HAS to transfer if you transfer the main scheme benefits. If your current scheme will not accept the AVC element of the transfer value then they cannot accept the transfer value of the main benefits either, meaning that the transfer cannot go ahead.

I think that you should ask your pension debt to clarify the position. I can't see any reason why they would not be able to accept the AVCs.

Also, the statement you received from your old pension provider will still apply, so in theory you don't need an updated statement. Just take the figures on your leaving statement and apply the annual pre-retirement increases that the statement says you will get (e.g. RPI up to 5%) up to today's date. An IFA would be able to do this for you, but you could probably get a reasonably close estimate yourself. In the end it doesn't have to be completely accurate given that you are trying to predict the future anyway.

erb

Pal Thanks for your advice.

I will wait and see what old pension scheme dept. say about the AVC transfer and then will clarify options for this. I will work out the pension benefit of old scheme as you suggested, but am surprised they did not provide this in the first place.

erb

Update to previous posts.

Finally got Equitable Life AVC transfer value and this has a penalty of about 15% if I transfer now:mad: . If I leave it until I retire no penalty and guarranteed return. Also, comparing occupational pension in old scheme with transferring to new scheme old scheme will provide a much better pension so remianing in old scheme.

dunstonh

It may have a 15% penalty but if you get an illustration from another provider based on the transfer value, you may well find that 15% is recovered over the remaining term. Also, you can more or less assume 0% on Eq Life

The guarantee you mention; is that annuity rate or minimum fund value?

Pal

Many Equitable Life occupational AVC schemes have a guaranteed 3.5% annual investment return. It may apply in this case.