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Pru GAR pension to annuity
srcandas
Posts: 1,241 Forumite
My 60th birthday is 27 August this year so just phoned the Pru (as suggested in another thread here, tx) who have my former Scottish Amicable with profits PP fund of about £63000 with a GAR of 9.3%. Requested details of the annuities available.
Thought as with the evaluation recently requested and supplied by post that they would just send it to me. However the help desk insisted a specialist calls me!
Just wondered if anyone knows what they might try and sell me as if I understand it correctly from our resident experts they cannot offer me advice. :beer:
Thought as with the evaluation recently requested and supplied by post that they would just send it to me. However the help desk insisted a specialist calls me!
Just wondered if anyone knows what they might try and sell me as if I understand it correctly from our resident experts they cannot offer me advice. :beer:
I believe past performance is a good guide to future performance :beer:
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ust wondered if anyone knows what they might try and sell me as if I understand it correctly from our resident experts they cannot offer me advice.
Some of the insurers have set up small "annuity service" salesforces and gone panel based. a multi-tie as such and limited to retirement options only.
Its probably to try and take some money away from the IFAs. e.g. if you see an IFA and the GAR with pru is best, then Pru will pay that IFA 1.3% (or around that figure). However, if you speak to someone from Pru and they tell you to use the Pru pension, then Pru doent pay out that 1.3% to anyone.
They wont beat that GAR but they would have saved paying an IFA and kept the money for themselves.I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.0 -
Dunston I'll try a pitch. OK Pru I won't use an IFA if you give me 0.65% of the commission added to my fund. Do you think they'll agree?
:beer:I believe past performance is a good guide to future performance :beer:0 -
Dunston I'll try a pitch. OK Pru I won't use an IFA if you give me 0.65% of the commission added to my fund. Do you think they'll agree?
:beer:
Not a chance.
GARs are one of the losers on the RDR. the annuity rate is factored into the plan. They wont be able to pay the commission post RDR but it will not benefit the policyholder either. The insurer gets the full benefit.I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.0 -
Not a chance.
GARs are one of the losers on the RDR. the annuity rate is factored into the plan. They wont be able to pay the commission post RDR but it will not benefit the policyholder either. The insurer gets the full benefit.
Pity that an IFA couldn't split it under those circumstances.0 -
Well the expert called and did not try to sell me anything or put me off using an IFA. However she said:
The pot is worth £71061 which would result in a flat rate pension of £6412.92
[but the GAR on 9.3% comes to £6608.67 so I guess there are hidden costs ??
]
That she couldn't reduce the pension age set at 75 as it could only be increased so she couldn't set it up so I received the termination at 60 automatically. I would have to request such and state what types of annuities I wanted to see.
The lump sum (25%) comes to 17764 so based on the fact I am and will be a base rate tax payer it makes sense to take it despite the GAR.
As a pension the lump pays flat rate 1282.58 so 14 years to catch up even if inflation was 0% and I earned 0% interest
What these people gain by being inflexible I have no idea but I guess once I have my lump and the pension goes into the bank I can ignore them.
At least HL do try hard to be helpful even if some think they are a little expensive :beer:I believe past performance is a good guide to future performance :beer:0 -
At age 60, the real annuity rate is around 5.4% for a woman buying a flat pension. Your pension rate offered is 9%. You are therefore getting an uplift of 67% from your GAR. Taking the cash is giving that away.
The equation is £1282 a year for life versus £17764. You could earn 2.5% per annum risk free over 20 years so let's use that return. On that basis, you spend all your cash before age 76. If you are in normal health now then you can expect to live until around age 85.
The pension will probably be good value but if you need the cash to pay off any debts or for something else that you'd otherwise have to borrow to pay for then the cash could be the best deal.
I'll confess to being a qualified actuary and so not like a normal human being but I'd take the full pension personally.0 -
RetirementAngel wrote: »At age 60, the real annuity rate is around 5.4% for a woman buying a flat pension. Your pension rate offered is 9%. You are therefore getting an uplift of 67% from your GAR. Taking the cash is giving that away.
The equation is £1282 a year for life versus £17764. You could earn 2.5% per annum risk free over 20 years so let's use that return. On that basis, you spend all your cash before age 76. If you are in normal health now then you can expect to live until around age 85.
The pension will probably be good value but if you need the cash to pay off any debts or for something else that you'd otherwise have to borrow to pay for then the cash could be the best deal.
I'll confess to being a qualified actuary and so not like a normal human being but I'd take the full pension personally.
I'll treat you like a normal human because I'm sure you are, and in any case my mum told me always to be kind to angels
The problem as I see it is the fact it as a GAR and is thus better than normal doesn't make it value for money.
It is easy to calculate the tax on the pension and the interest one might earn but it is inflation that clobbers it. How much will £1282 be worth when I'm 85?
Correct me if I'm wrong (cause I only get one crack at this decision :eek:) but:
I can take £1282 from £17764 13.8 times. If we allow 2.5% which can easily be beaten as for example £10000 could easily be locked away for 6 years, I'm ok till 75.
Now I accept that if I live to 85 I miss out for 10 years but taking the money has hidden advantages.
If inflation increases between 5 and 10 years I can get even greater interest. (ok it is a small benefit as it is by then a smaller pot).
If I throw it into a pension I get 20% tax relief. So I put £17764 in, get 20% uplift = £22205 giving £5551 tax free lump plus £749 from drawdown (being a guy I've gone for 4.5% flat but maybe I could get better??) and if I croak early my wife/step daughter get a bit more.
And the lump of £17764 gives me great flexibility (and obviously some risk if I just spend it on wine, woman and song
).
So even at 9% GAR it is at best a very close call would you not say?
You see what I mean, even with an angel on my side it is all very difficult :beer:I believe past performance is a good guide to future performance :beer:0 -
Unless you have earnings from work of more than 17k you won't be able to put the 17k back into a pension. There are also rules about recycling a pension lump sum which I think will get in the way. I'm not allowed to post links but Google recycling lump sum and I think you'll see it can't be done as you suggest.
The inflation point has some validity but in order to invest to protect against inflation then you will take some risk of your fund falling in value. It isn't a free lunch.
I agree with your flexibility point. It is the best reason you have given for taking the lump sum.
Given that you are already in drawdown which I didn't know before then I'd suggest that taking the maximum GAR gives you greater security in your income. You could then take less out of your drawdown and give it chance to grow.
If you are worried about protecting the pension for your wife then ask if Pru will do the GAR with a 10 year guarantee.
Tea time now!0
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